Good news in Europe and China whets investors' risk appetite

Shares posted gains across the market, on low volumes, after better-than-expected German manufacturing data helped European markets spread more holiday cheer.

Positive manufacturing data in China at the weekend also helped to boost the appetite for risk, helping resources and energy stocks.

An adviser at Burrell Stockbroking, Jamie Elgar, said the market was still poised for a rebound when European leaders had come up with a concrete answer to the debt crisis.

"I expect that in the first quarter, or the first half, we could see some new lows but we will end this year higher," Mr Elgar said. "If something does happen [to resolve the debt crisis] I think the market has the propensity to see a bit of a bounce."

At the close yesterday, the benchmark S&P/ASX200 index was up by 44.6 points, or 1.1 per cent, at 4101.2. The broader All Ordinaries index was up by 44.2 points, also 1.1 per cent, at 4155.2.

Materials led the pack higher, adding 1.6 per cent after commodity prices benefited from an overnight upswing in risk appetite. BHP Billiton rose 1.1 per cent to $34.80 and Rio Tinto rose 1.8 per cent to $61.40.

Shares in Gloucester Coal rose by 1.2 per cent to $8.70 following reports that it will wait until Yanzhou Coal Mining Co completes inspecting its books before deciding whether or not to recommend the company's $2 billion takeover offer.

Industrials got a boost from Australian Industry Group and PricewaterhouseCoopers' data showing the manufacturing sector moved into positive figures in December. OneSteel closed 1.4 per cent higher at 71? and BlueScope Steel rose 1.2 per cent to 41?.

The big four banks also benefited from the improvement in sentiment, gaining between 0.7 per cent and 1.7 per cent on the day.

However, brokers noted that volumes were thin and much of the "smart money" - slang for institutional investors - were staying on the sidelines. On the exchange, 828 million shares were traded at a value of $1.8 billion.

Investors would be wary about the outcome of the next round of talks in Brussels and the prospect billions of euros of debt being rolled into the next quarter.

"It will not really be until mid-January at the earliest, as market players and money managers return from their holidays, that we will be able to garner a real assessment of the market's mood," an IG Markets' market analyst, Cameron Peacock, said.