Banks, property trusts, consumer staples and energy companies pushed the sharemarket to its highest close since September 2008, as investors digested earnings reports while awaiting the overnight release of minutes from the US Federal Reserve's January meeting.
Worldwide, equity markets strengthened after a big improvement in German investor sentiment reinforced the view that the international economy was recovering.
The benchmark S&P/ASX 200 closed up 0.3 per cent at 5098.7 after hitting 5106.6. Trading volume remained strong at $6.2 billion, well up on the December quarter average $4bn.
Analysts said money continued to flow into equities as bond markets remained weak. Yield for the 10-year Australian government bond hit a nine-month high of 3.61 per cent before closing at 3.58 per cent. In US trading, the S&P 500 rose 0.7 per cent, while US 10-year bond yields climbed three basis points to 2.03 per cent.
"The theme of an improving global economy causing money to flow from bonds to equities continues and we expect this to be quite long-lived, barring a global catastrophe," CMC Markets chief market strategist Michael McCarthy said.
Market participants said the Fed's January minutes could support equities by further weighing on the US bond market. After its December minutes, the Fed said several board members thought it would probably be appropriate to slow or to stop purchases well before the end of this year.
"I think there is potential for some things that do upset the bond market, but my personal view is that US quantitative easing remains in place all year," said Stephen Halmarick, who helps manage about $US50bn ($48.2bn) as head of investment-markets research at Colonial First State Global Asset Management. Woodside rose 3.1 per cent after its underlying first-half net profit grew 25 per cent to $US2.06bn, beating expectations by about 4 per cent.
Insurer IAG jumped 2.7 per cent after Suncorp, which has both banking and insurance divisions, reported a 19 per cent rise in its insurance margin, but Suncorp slipped 0.9 per cent as its interim results showed rising impaired loans.
Toll Holdings gained 4.6 per cent after positive outlook commentary and Aurizon fell 6.2 per cent after lowering its full-year guidance for coal haulage volumes.
Leighton Holdings rose 3.6 per cent after confirming negotiations to sell 70 per cent of its telecommunications infrastructure assets to Ontario Teachers' Pension Plan for $619.5 million, proceeds of which would be used to reduce the contractor's debt.
BHP Billiton fell 0.9 per cent after its interim results revealed a sharp rise in costs. Briefly supporting BHP shares was an announcement from the company that its non-ferrous metals division chief, Andrew Mackenzie, would replace Marius Kloppers as chief executive in May.
"The headlines on BHP's CEO succession plans grabbed attention, but it's the result that really matters -- and that was a poor result," Mr McCarthy said.
Buoyant investor sentiment sent the Australian dollar higher, helped by rising global stockmarkets and more signs that the world economy is healing.
Helping the Aussie was upbeat German consumer confidence and a rally in commodity prices.
"Economic indicators continue to tick the boxes required in order for financial markets to keep ascending, with traders appearing more inclined to be looking for reasons to buy rather than reasons to sell in the current economic climate," said Tim Waterer, a trader at CMC Markets in Sydney.
At 5pm AEDT in Asian trading, the dollar was buying $US1.0365, up US0.36c.
The dollar ignored local data showing wages remained contained in the final quarter of last year as the economy slowed and job losses mounted, especially in industries such as mining.
