The S&P/ASX 200 index started the day in the red but closed 1 percent higher at 5,658.30.

Australia's budget deficit for the fiscal year to June 2019 is expected be slashed to A$5.2 billion ($3.7 billion) from the A$14.5 billion projected in May, which may help deliver a budget surplus by 2019/20.

Prime Minister Scott Morrison plans to fight an election in the first half of next year on tax cuts which could be made possible through the proposed budget.

Mathan Somasundaram, market portfolio strategist at Blue Ocean Equities, said the prospect of a surplus in the next year or so had been positive for stocks.

The mining and metals index was the best performer, rising 2.7 percent to its highest since Nov. 14 on the back of rising prices of most base metals.

Among the top gainers was Mineral Resources which rose around 10.6 percent and touched its highest level since Nov 22. BHP Group rose 3.5 percent to a high of more than five-weeks after announcing a special dividend of $1.02 per share and the completion of its off-market share buyback.

With cautious optimism that China and the United States will be able to resolve a trade row, the energy index recovered to close the session 0.4 percent higher with WorleyParsons rising 1.2 percent and Washington H Soul Pattinson climbing 2.9 percent.

"The potential deal between Italy and the EU and positive news about China are indicating a stabilisation of global growth which is positive for the energy sector," Somasundaram said.

The Australian financial index ended the session 0.1 percent lower. Australia and New Zealand Banking Group was one of the top drags, falling nearly 2 percent to its lowest level since July 2016. Westpac Banking Corp fell 1 percent, dipping to its lowest level since Nov 2012.

New Zealand's benchmark S&P/NZX 50 index also recovered from the day's losses to close 0.3 percent or 23.08 points higher at 8,745.59.

Fisher & Paykel Healthcare rose 4.6 percent and was the index's top boost, followed by Ebos Group Ltd which rose 1.5 percent.