THE local sharemarket closed at a fresh 19-month high as firming expectations of a February interest rate cut helped banking stocks.
At the close, the benchmark S&P/ASX 200 Index was up 18.3 points, or 0.38 per cent, at 4756.6, while the broader All Ordinaries was up 14.7 points, or 0.31 per cent, at 4779.7. It was the S&P/ASX 200's highest close since May 11, 2011.
Banking stocks performed strongly after Bureau of Statistics data showing the national unemployment rate rising by 0.1 percentage points to 5.4 per cent in December.
City Index analyst Peter Esho said the news helped banking stocks, as markets firmed expectations for a near-term rate cut.
"We're more likely to see the Reserve Bank move in February," he said. "It will help the banks with their margins and it will make dividend yields more attractive."
Mr Esho said lower mortgage rates meant banks could deliver lower interest rates on deposits.
ANZ posted the strongest gains, rising 21¢ to finish at $25.57. NAB climbed 19¢ to $26.04, Westpac also gained 19¢, to $26.62, and CBA added 17¢ to finish at $62.46.
The energy sector also performed strongly after Woodside Petroleum revealed production and revenue had risen about 30 per cent in 2012 to new records because of its massive Pluto liquefied natural gas operations in Western Australia. Oil and gas company Santos also revealed it was on track to meet its 2013 production forecasts after enjoying a 10 per cent rise in 2012.
Woodside shares finished flat at $35.20, after hitting an intraday high of $35.56, while Santos finished up 8¢ at $11.72.
Uranium miner Paladin Energy closed 3¢ higher at $1.185 after it said it was on track to meet full-year production targets.
Billabong shares closed 4.66 per cent firmer at $1.01, two days after the stock soared when US retailer VF Corp's takeover bid stirred hopes of a bidding war.
Qantas shares finished 1.3 per cent weaker, despite the Australian Competition and Consumer Commission giving interim authorisation to its alliance with Emirates.
The Australian dollar lost nearly 0.5¢ to US105.10¢.
On credit markets, bond futures prices rallied on news of the rise in unemployment.
RBC capital markets fixed interest strategist Michael Turner said there had been strong demand for haven investments such as bonds. "We started the day off quite strongly and we haven't really looked back," he said.
He said strong demand for Australian bond futures was likely to continue during the European and US sessions overnight.
The March 10-year bond futures contract was trading at 96.735 (implying a yield of 3.265 per cent), up from Wednesday's close of 96.665 (3.335 per cent). The three-year contract was at 97.310 (2.69 per cent), up from 97.240 (2.760 per cent) previously.