A surge on world markets late in the week pulled Australian shares out of the doldrums, with banks leading the charge locally.
In the biggest one-day jump since January last year, the benchmark S&P/ASX 200 Index rose 96 points, or 2 per cent, to 4791.8 on Friday, while the broader All Ords added 90.6 points, or 1.9 per cent, to 4775.5.
For the week, the ASX 200 finished 0.7 per cent higher, ending a four-week run of losses.
Before Friday, the index was down 1.3 per cent and was close to wiping out all its gains for the year.
Speculation that the US Federal Reserve will taper its quantitative easing program was offset by stronger than expected US economic data. Strong retail sales numbers and jobless claims were enough to encourage traders that the world's largest economy was on the road to recovery.
Wall Street jumped on the signs of resilience, snapping a three-day losing streak that flowed through international markets.
This is at odds with recent trends that have seen investors react negatively to positive US economic data, who have taken it as a sign that the US Fed might stop printing money.
Across the Asia-Pacific region, Japan's Nikkei pushed 1.9 per cent higher, while Chinese markets bounced back from six-month lows on Thursday.
Banks, which started gathering momentum earlier in the week while the rest of the ASX was still suffering losses, led the charge into positive territory. For the week, Westpac rose 4.9 per cent to $28.94, ANZ pushed up 4.2 per cent to $27.82, NAB was 3.6 per cent higher at $29.38 and Commonwealth Bank added 3.2 per cent to $67.10.
"Generally this year, the banks have led the way. Once the banks start moving up, it does drag the rest of the index up as a lot of safer money comes back into the market," Ord Minnett senior investment adviser Tony Paterno said.
While mining stocks rose sharply on Friday, their losses earlier in the week offset much of the gains. BHP and Fortescue both finished about half a per cent down, but Rio Tinto pushed 1.5 per cent higher.
"The market is sending a lot of mixed signals. It's not being rational at the moment, it's a bit like a casino," Mr Paterno said.
Next week's US Fed meeting will be crucial for investor confidence. Volatility is likely to continue until chairman Ben Bernanke makes clear the central bank's intentions with regard to its monthly $US85 billion bond-buying QE scheme.
The Australian dollar continued its wild ride this week, trading as low as US94.27¢ early in the week and as high as US96.64¢ on Thursday night in the US. In late trade on Friday, the dollar was fetching US95.90¢, ¥91.2, 71.87 euro cents and 61.08 British pence.
ANZ currency strategist Andrew Salter said the fall in dollar was "just collateral damage", caught up in a volatile market place.