THE sharemarket continued its climb yesterday, reaching a 17-month high on positive news from Europe as US politicians inched closer to a deal on the fiscal cliff crisis.
Utilities, energy, industrials, telecommunications, materials and financial stocks were up, despite some caution ahead of a seasonal contraction in liquidity.
"I'm very cautious heading into year-end and January because we're moving into a period of very low liquidity, with the potential for high volatility from news flow around the globe," said Michael McCarthy, CMC Markets' chief market strategist.
"However, the strong up-trend and low volatility currently suggest the rally is going to continue."
The benchmark S&P/ASX 200 closed up 0.5 per cent at 4617.8, after rising as much as 0.7 per cent earlier in the day to 4627.1 -- its highest point since July last year.
The index is now up 14 per cent for the year, versus a 15 per cent rise for the S&P 500.
Macquarie Group jumped 2.2 per cent after its US peers surged overnight, and resources stocks continued to benefit from a recent surge in iron ore prices, with BHP Billiton up 1 per cent and Rio Tinto and Fortescue Metals rising 1 per cent and 1.4 per cent.
"Investors are generally underweight the miners, so there's been a 'fear of missing out' rally," Morgan Stanley Smith Barney investment adviser Shannon Briggs said.
Goldminers suffered, however, with Newcrest down 2.9 per cent after spot gold fell 1.6 per cent on Tuesday.
The decline in gold followed news that Standard & Poor's upgraded its long-term debt rating on Greece's government bonds from "selective default" to B-minus following an improvement in the country's sovereign debt situation on the back of eurozone support.
High-yield stocks were well supported despite signs of profit taking. ANZ Bank, National Australia Bank and Telstra rose between 0.5 per cent and 0.9 per cent.
"It is clear that there's a fair bit of defensive money hiding in high-yield stocks, but I think the high-yield story has further to go," Mr Briggs said.
He said the index had "a real chance of hitting 5000 next year", as dividend yields remained attractive. He added that China's economy looked to have bottomed, the European debt crisis had stabilised, the US economic recovery was being underpinned by quantitative easing, and the Reserve Bank was expected to keep cutting interest rates.
Billabong dived 13 per cent after slashing its full-year earnings guidance by about 40 per cent, even as it confirmed a takeover proposal from a consortium led by former director Paul Naude.
Sims Metal, the world's largest publicly listed metal recycling company by market capitalisation, fell 3.3 per cent after it downgraded its first-half earnings guidance by 20 per cent, citing weak market conditions.
OZ Minerals dived 10 per cent amid concern about its 2013 production outlook. The copper and gold miner was due to update the market in late January 2013.
The Australian dollar edged lower in Asian trade as growing optimism that European leaders may mend the region's struggling economy led investors to bet on the euro. At 5pm AEDT, the Australian dollar was buying $US1.0516, down US0.18c.
The decision by Standard & Poor's to raise Greece's sovereign debt rating helped boost the euro to an eight-month high against the US dollar at $US1.3239.
"If the world has spent the past five years underweighting European assets and overweighting perceived safe havens like the Aussie, then we could start to see this trend reverse in 2013," said Robert Rennie, a forex strategist at Westpac. "I think the euro outperforming against the Aussie could be a story for next year."
