Investors will still be cautious though until clearer fiscal and economic policies are spelled out, analysts said.

"People will feel a bit more comfortable, but there is still a long way to go. Risk aversion will still be in the marketplace until further resolutions are made," Paterson Securities dealer Martin Angel said.

Italy's president asked former European Commissioner Mario Monti on Sunday to form a government to restore market confidence in an economy whose debt burden is too big for the euro bloc to bail out.

The top four banks and financial firms boosted the market with gains between 1.0 percent and 1.6 percent, led by Westpac Banking Corp up 1.6 percent to A$21.38.

The benchmark S&P/ASX 200 index gained 48.3 points to 4,344.8 at 2356 GMT. The benchmark rose 1.2 percent on Friday at the end of a choppy week.

New Zealand's benchmark NZX 50 index was up 0.6 percent to 3,342.1.

STOCKS ON THE MOVE

Shares in pSivida Corp halved after news that its licensee Alimera Sciences Inc's experimental drug to treat retinal swelling was rejected by US regulators for the second time, citing safety issues.

The Australian-listed shares lost 51 percent to A$2.00, versus a 48 percent slump in the Nasdaq-listed shares on Friday.

Alimera, which is co-developing the drug Iluvien with pSivida, had lost about 75 percent of its value.

Fertiliser and explosives maker Incitec Pivot shares gained 0.6 percent to A$3.54 after reporting a 20 percent rise in annual profit, just ahead of forecasts.

Shares in bread and spreads maker Goodman Fielder rose 1.9 percent to A$0.53 ahead of an investor day on Thursday, with media reports saying the company is expected to present a turnaround strategy including cost-cutting and product rationalisation.

Copyright Reuters, 2011