THE sharemarket hit a 17-month high as retailers and iron ore miner Fortescue provided momentum on a quiet day of trade.
The benchmark S&P/ASX 200 Index gained 12.8 points, or 0.28 per cent, to 4648, its highest closing since July 8 last year.
Fortescue Metals was a standout performer, up 18¢, or 4.1 per cent, at $4.53 after announcing it would resume work expanding the Kings deposit at its Solomon iron ore mining hub in January after a pick-up in commodity prices.
Other iron ore miners also rose as prices for the steel-making commodity continue to show signs of stabilising, IG Markets analyst Stan Shamu said.
Rio Tinto gained 61¢ to $65.45 and BHP Billiton added 13¢ to $36.99.
Retailers were the other strong performers, on reports of higher turnover at Boxing Day sales.
"The retail sector is having a good day following reports of record festive sales helped by low interest rates," Mr Shamu said. "Festive periods are generally make or break for many retailers."
Myer added 6¢ to $2.13, David Jones gained 7¢ to $2.41, Harvey Norman rose 3¢ to $1.885 and JB Hi-Fi was 3¢ higher at $10.26.
Market activity was lower after the Christmas break, with 849 million shares traded, well below the typical level of about 1.4 billion.
There was little economic news at home or abroad to guide investors, with the main focus still on negotiations in the US to avoid the so-called fiscal cliff. Members of Congress are expected to resume negotiations on Thursday in Washington, but there are no signs of any agreement on measures to reduce the impact of spending cuts and tax rises due to begin on January 1.
Bank shares fell on Thursday, possibly in response to the impending fiscal cliff situation, as well as profit-taking by investors, Mr Shamu said.
Commonwealth Bank shed 21¢ to $62.12, Westpac lost 7¢ to $26.10 and ANZ closed 6¢ lower at $24.91. NAB bucked the trend, adding 7¢ to $24.95.
The spot price of Sydney gold closed at $US1655.60, down $US3.63.
Meanwhile, the dollar closed below US104¢ for the first time since November as investors poured into the US dollar amid US budget talks. The dollar was trading at US103.57¢, down half a per cent from the pre-Christmas close.
The bond market closed flat to weaker as a positive day for local stocks dampened demand for fixed-income assets. The December 10-year bond futures contract was trading at 96.67 (implying a yield of 3.33 per cent), down from its pre-Christmas close of 96.68 (3.32 per cent). The three-year contract was at 97.27 (2.73 per cent), unchanged.