Australian shares rose on Tuesday by their most in two weeks, as a tech-led overnight rally on Wall Street and upbeat US data helped investors look past dour domestic retail sales print and a central bank prediction the economic recovery would be bumpy.

The S&P/ASX 200 index closed 1.88pc higher at 6,037.6, with technology, energy and financials stocks leading the charge.

Overnight, the three major US indexes gained between 0.7pc and 1.5pc as signs of a rebound in multibillion-dollar deals bolstered risk sentiment.

Adding to investor confidence, an industry gauge indicated US manufacturing activity expanded in July at the fastest pace in more than a year.

"The strong data from the US following positive Chinese data earlier on Monday reaffirmed that the global economic recovery was still in place," said Kyle Rodda, market analyst for IG Australia.

A private business survey showed China's factory activity expand at the fastest pace in nearly a decade in July.

Meanwhile, the Reserve Bank of Australia left its cash rate at a record low of 0.25pc and predicted a bumpy road to economic recovery, as the country's second-largest state Victoria remained in a virus-led lockdown.

Data released earlier in the day showed domestic retail sales volumes suffered their biggest plunge in two decades in the second quarter.

"Some really positive news overnight and overseas has overwhelmed local stories, but you can bet on a lot of volatility going forward brought about by the virus-led lockdowns and its potential impact on the economy," Rodda said.

The tech subindex rose more than 3pc , with Afterpay surging over 6pc.

Energy stocks advanced 2.6pc, led by a 4.7pc rise in Santos Ltd, helped partly by overnight gains in oil prices.

Financials stocks added 2pc, with the 'big four' banks rising in a range of 1.7pc to 2.3pc.

New Zealand's benchmark S&P/NZX 50 index rose 0.9pc to 11,771.7, helped by gains in financials and healthcare stocks.