Aust stocks close sharply stronger

Local market extends gains throughout day on US Federal Reserve taper news and resulting lower Australian dollar.

The Australian stock market has soared in the day's trade after this morning's news that the US Federal Reserve would begin tapering its monthly bond-buying program in the new year.

At the official market close of 1615 AEDT, the benchmark S&P/ASX200 index rose 2.08% to 5,202.2 points, while the broader All Ordinaries index increased 2.01% to 5,202 points.

Early on Thursday morning, the Fed said it would reduced its bond purchases by $US10 billion a month to $US75 billion, starting in January.

IG Market strategist Stan Shamu said a resulting rally in the US dollar, which pushed the Australian dollar lower, had also supported the market's gains.

"The Reserve Bank of Australia (RBA) would have ... been cheering the move as the AUD/USD dropped below August lows," Mr Shamu said.

"This will certainly ease pressure on the central bank and government in the near term and they will be hoping to see further tapering in the New Year."