The sharemarket surged to a 21-month high yesterday as investors dumped bonds and rushed to buy equities in response to an improving global growth outlook.
Overnight on Monday, the US reported a 4.6 per cent rise in durable goods for December, showing spending on big-ticket items in the US was strong despite the threat posed by the so-called fiscal cliff.
On Friday night, the European Central Bank said the region's lenders were repaying its first three-year long-term refinancing operation loans -- designed to ease the strain in European credit markets -- faster than the market expected.
That suggested European funding markets were returning to normal.
The benchmark S&P/ASX 200 closed 1.1 per cent higher at 4883.3 after touching 4896.6. It was the ninth consecutive rise in the index, which has gained 5.2 per cent so far in 2013, building on a 15 per cent advance in 2012.
On the charts, the index was fast approaching major technical resistance around 5000.
Fuelling the rally in equities was a sell-off in bonds, which saw commonwealth government 10-year bond yields surge 19 basis points to 3.51 per cent. Bond prices have fallen 31 per cent since late July 2012 while the sharemarket has rallied 20 per cent in the same period.
Healthcare stocks, banks, telcos and consumer stocks led the charge, with CSL, Westpac, Telstra, Wesfarmers and Tatts Group jumping between 2 per cent and 3.7 per cent.
Among stocks that fell, Suncorp lost 1.9 per cent and QBE shed 2.7 per cent after tropical cyclone Oswald pummelled Australia's eastern seaboard. Newcrest Mining declined 1.7 per cent after spot gold fell 0.8 per cent over the weekend.
Traders cited a global theme of investors switching from bonds to equities in response to an easing of concern over the European debt crisis and global economic growth.
"The upward move in fixed-income yields is definitely confirmation of a switch from fixed-income back into the equity market," BBY institutional trader Anson Rosewall said.
With the S&P/ASX 200's daily relative-strength index -- a market momentum indicator -- at a record high, Mr Rosewall cautioned that the sharemarket could be prone to a pullback during the domestic reporting season next month.
However, Citi strategist Tony Brennan said there were grounds for optimism on earnings.
"Conditions are looking a little brighter in a number of sectors, in particular with the uptick in commodity prices and the rally in the equity market, and that obviously lessens the risk of disappointment in those areas," Mr Brennan said in a report.
Currency strategists downplayed the likely economic damage from the east coast floods yesterday as the dollar closed marginally up against the greenback.
At 5pm AEDT, the dollar was buying $US1.0452, up US0.03c.
