At the close, the benchmark S&P/ASX 200 was up 38.1 points at 4,201.0 after adding 3.8 percent last week -- its biggest weekly gain in more than a year.
IG Markets analyst Cameron Peacock said that positive catalysts for financial markets appeared to be growing, including a Franco-German pact to fix Europe's debt crisis.
"The Europeans would now seem to be singing from the same hymn book and while some form of solution to the crisis is still a ways off, it now at least seems plausible," he said.
"Also, (economic) data out of the US over recent weeks has certainly not been consistent with the recession fears the market has been pricing into equities.
"The ducks may just be lining up for an extended Santa Claus rally into year end."
The commodities-linked Australian dollar was also higher at 98.34 US cents late in the session, from 97.75 cents on Friday.