The sharemarket jumped to a 21-month high as stronger than expected trade data for China boosted confidence in Australia's biggest trading partner, and as the Reserve Bank said it had scope for further interest rate cuts.
Shares were also boosted as analysts grew more optimistic about the market's ability to withstand the domestic corporate earnings season.
The benchmark S&P/ASX 200 closed up 0.7 per cent at 4971.3, its highest point since April 2011. After rising 25 per cent since July, the index has faced technical resistance around 5000, a level that has mostly capped recovery since the global financial crisis.
Healthcare, consumer discretionary, materials, energy and industrials outperformed the index, while telecoms, utilities and property trusts underperformed. Westfield Group and Westfield Retail Trust traded ex-dividend.
China's trade recorded a $US29.2 billion ($28.34bn) trade surplus for January, higher than the $US26.6bn economists expected, with exports up 25 per cent and imports up 28.8 per cent.
"With the new leadership group headed by Xi Jinping set to take power in a few weeks, China is seeking to sustain economic growth," said IG analyst Evan Lucas. "The risk of a hard landing looks to be abating."
The RBA trimmed its economic growth and inflation forecasts, while saying it had scope to cut interest rates further if the economy weakened or was sideswiped by more shocks from the world economy. The RBA also said lower interest rates were starting to help interest-sensitive parts of the economy.
Reflecting improving sentiment about the earnings season, BHP Billiton, Fortescue Metals, Alumina, ANZ, Woodside Petroleum and CSL surged 0.8 per cent to 2.3 per cent ahead of their earnings reports.
Newcrest Mining, Australia's largest listed goldminer by value, jumped 5 per cent after reporting a first-half net profit of $320 million, which exceeded the $299.8m median forecast of six analysts.
NAB added 1.4 per cent as analysts raised their earnings estimates after a strong trading update this week.
News Corporation jumped 3.1 per cent after falling on Thursday after a profit warning.
The Australian dollar extended a week-long decline as global investors continued to water down safe-haven exposures to the currency in light of an improving world economy.
Andrew Salter, senior currency strategist at ANZ, said this week saw the biggest one-week decline by the dollar since late December.
By late afternoon it was trading at $US1.0286, down from $US1.0317 late on Thursday. It traded as high as $US1.0457 at the start of the week, falling to an intraday low of $US1.0252.
"There's an unwind of safe-haven positions filtering through the FX market," Mr Salter said.
