Bumper Friday helps market end the week in the black

A surge on world markets late in the week pulled Australian shares out of the doldrums, with banks leading the way into positive territory.

In the biggest one-day jump since January last year, the benchmark S&P/ASX 200 rose 96 points, or 2 per cent, to 4791.8 on Friday, while the broader All Ordinaries Index added 90.6 points, or 1.9 per cent, at 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 Federal Reserve would taper its quantitative easing program was offset by better-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, which flowed through international markets.

This is at odds with recent trends, where investors have reacted negatively to positive US economic data, taking it as a sign the Fed may stop printing money.

Japan's Nikkei rose 1.9 per cent, while Chinese markets bounced back from six-month lows hit on Thursday.

Banks, which started gathering momentum earlier in the week while the rest of the ASX was still suffering losses, led the charge.

For the week, Westpac rose 4.9 per cent to $28.94, ANZ 4.2 per cent to $27.82, NAB 3.6 per cent to $29.38 and Commonwealth Bank 3.2 per cent to $67.10.

"Generally this year, the banks have led the way," Ord Minnett senior investment adviser Tony Paterno said. "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."

While mining stocks rose sharply on Friday, their losses earlier in the week offset much of the gains. BHP and Fortescue finished about 0.5 per cent lower, but Rio Tinto managed to buck the trend, rising 1.5 per cent.

"The market is sending a lot of mixed signals." Mr Paterno said. "It's not being rational at the moment, it's a bit like a casino."

Next week's US Fed meeting will be crucial for investor confidence. Volatility is likely to continue until chairman Ben Bernanke makes clear the Fed's intentions with regard to its quantitative easing.

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 Aussie was fetching US95.90¢, 91.2 yen, 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.

"It's something that's not really Aussie specific at the moment, it looks to be a consequence of what's going on in the Nikkei and yen in Japan," Mr Salter said.

Through this month, the yen has been strengthening against major currencies. It has risen 6 per cent against the US dollar, 3.3 per cent against the euro and 5.7 per cent against the Australian dollar.

Mr Salter said the volatility surrounding the Aussie was linked to uncertainty regarding the US' quantitative easing.

"I don't think markets have a clear understanding of that. We'll wait for the FOMC [Fed Open Markets Committee] meeting next week," he said.