AUSTRALIAN shares rallied along with global markets yesterday after European Central Bank president Mario Draghi pledged to do "whatever it takes" to safeguard the future of the euro.
Shares, bonds and the euro all rose sharply in Europe after Mr Draghi dropped the strongest of hints that the bank was preparing to intervene to bring down the crippling borrowing costs affecting the Spanish and Italian governments.
The Australian sharemarket followed the lead, closing up 1.5 per cent, with financials and resource stocks leading the way on renewed optimism that Europe's leaders will not allow the common currency to break up.
The dollar jumped back above $US1.04.
RBS Morgans Brisbane equities director Bill Chatterton said Mr Draghi's comments led the way for a positive session across almost all sectors, especially resources.
"The fear went away a little bit," he said. "There was a bit more confidence back in the market."
In what was seen as the start of a power struggle with Germany's Bundesbank, Mr Draghi told a business conference in London that the ECB had the legal right to act if the high bond yields caused by Europe's sovereign debt crisis were making its interest rate policy less effective.
Germany has argued that the ECB has no legal right to copy the interventionist policies adopted by the US Federal Reserve and Bank of England, but Mr Draghi said: "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro ... And believe me, it will be enough.
"To the extent that the size of these sovereign premia [high bond yields] hamper the functioning of the monetary policy transmission channel, they come within our mandate."
Rates on Spanish 10-year bonds, which had peaked at 7.75 per cent this week, dropped below 7 per cent.