Australian stocks rallied 1.7 percent on Monday, led by banks and miners, on relief that US lawmakers reached a last-minute compromise on spending cuts and a deal to lift the debt ceiling to avoid default.
US President Barack Obama announced a last-minute deal to raise the US borrowing limit and urged lawmakers to "do the right thing" and approve the proposed agreement. The deal still needs approval in both houses of Congress.
Analysts said financial markets had been counting on a last-minute agreement. "The rally on the ASX 200 is in part a reflection of that uncertainty being removed, but also an indication of value in our market," said Peter Esho, chief market analyst at City Index.
The major banks, which have been heavily sold off in recent weeks as the prospect of a US default drew closer, led the gains with intraday gains of as much as 3 percent. The top gainer was ANZ Bank with a rise of 2.2 percent to A$21.29. The benchmark S&P/ASX 200 index advanced 73.2 points to 4,497.8, on below-average volume due to a bank holiday in Sydney.
On Friday, the index fell to its lowest close in 11 months as the US debt negotiations dragged on, although for the month of July the index still eked out a gain of 0.4 percent. Shares in Macarthur Coal rose 1.8 percent to A$15.83 as suitors Peabody and steel-maker ArcelorMittal went hostile in their A$4.7 billion ($5.2 billion) bid. The shares remained above the A$15.66 per share offer.