Chinese liquidity bid drives investment

The market closed significantly higher for a second day as investors grew more confident about China's financial system.

A positive lead from Wall Street also helped.

The market rose by about 1.6 per cent, following a similar gain on Wednesday.

At the close, the S&P/ASX 200 Index was up 79.6 points, or 1.68 per cent, at 4811.3. The broader All Ordinaries rose 77 points, or 1.64 per cent, to 4784.8.

"Taking a positive cue from Wall Street and the soothing comments out of Beijing overnight, Aussie traders are refreshed and revived as we see a renewed interest for Australian equities," CMC Markets trader Betty Lam said.

A reduction of first-quarter economic growth estimates by the US Commerce Department was taken by Wall Street as a sign the Federal Reserve would keep pumping money into the economy through its bond-buying program.

Fears of a credit crunch in China have also been allayed by moves from the country's central bank to improve liquidity.

The big banks were strong performers, with ANZ up 67¢ at $28.51, while Commonwealth Bank gained $1.87 to $69.16, NAB added 52¢ to $29.75 and Westpac was 57¢ higher at $28.81.

Other standouts included Qantas, which gained 5.5¢ to $1.345, Myer adding 12¢ to $2.38 and Telstra, up 13¢ to $4.78. But the big miners lost ground as key commodity prices dropped.

BHP Billiton fell 15¢ to $31.47 and Rio Tinto dropped 11¢ to $51.79.

IG market analyst Evan Lucas said the return of Kevin Rudd as Prime Minister and the resignation of key government ministers had little effect on the market.

Bond futures prices were firmer as dealers took a small amount of comfort from disappointing US growth numbers. Most of the price action came after the US Commerce Department slashed its estimate for first-quarter growth from 2.4 per cent to 1.8 per cent.

"It certainly helped the bid in bonds, but I think it's more the relentless commentary from central bankers trying to soothe markets," said RBC Capital Markets fixed-income strategist Michael Turner.

Dealers were squaring their positions before the Reserve Bank's July board meeting next week and the release of US payrolls data.

"Really, the focus for the Fed is going to be payrolls - they've been pretty consistent with that for the past several months."