Shares rocket $16b in value as buyers return

A surprising jump in employment figures a day after positive economic growth data left investors gobsmacked, and came amid renewed optimism on the fate of Spain's ailing banking system, helping the benchmark ASX 200 close 1.3 per cent higher at 4108.6 points.

The Australian dollar also recovered, surging back towards parity, trading at US99.39? by 5pm yesterday. It has now risen almost US3? since last Friday.

Surprisingly strong employment figures yesterday showed that the economy was in better shape than many believed. Bureau of Statistics data showed 38,900 new jobs were created in May.

Economists had been expecting a flat result.

These figures followed the release of data on Wednesday that showed the economy had grown 1.3 per cent in the March quarter, which was more than economists had expected, and after the Reserve Bank's 0.25 percentage point cut to the cash rate on Tuesday.

Those three factors proved positive for the Australian dollar yesterday, which surged towards parity with the greenback.

The dollar jumped US0.6? in response to the employment headline as speculators rushed to cover their short positions.

A senior currency strategist with Westpac, Sean Callow, said the dollar surged immediately after the jobs report, with extreme speculative positioning amplifying the price movements.

"The GDP number [on Wednesday] had to have an impact on the dollar," he said. "The currency had a terrible May, losing almost US7?, when there was evidence speculators had turned against it.

"If the dollar had spent the past six weeks rallying then I doubt we would have got such a big response to those jobs numbers."

Overall, the benchmark S&P/ASX200 index was up 53.3 points, or 1.3 per cent, at 4108.6, while the broader All Ordinaries index was up 52 points, or 1.3 per cent, at 4156.7.

The market however remains up just 0.2 per cent in 2012, while the dollar remains US9? below its recent peak.

The market has swung violently in recent months as investors weigh up Europe's ability to bail out its indebted members, with confidence ebbing and flowing with the latest economic statistics.

Confidence in the US recovery and a sharp slowdown in China have weighed on the mood of investors while fresh evidence of the European Central Bank's willingness to play a role in the continent's crisis has buoyed hopes.

Global sentiment was boosted last night as Spain was able to sell more than ?2 billion ($2.5 billion) worth of bonds in a critical auction.

The yield on the 10-year bonds increased to a little over 6 per cent in the sale, compared with 5.74 per cent in a similar auction in April.

However, the debt-heavy country managed to meet its full funding target, after the issue was over-subscribed.

The auction was a critical test of whether Spain could still access the global money markets after its borrowing costs have been at worryingly high levels for weeks.

Traders said local financial stocks appeared to be a direct beneficiary of the plan to recapitalise Spain's banks, accounting for 55 per cent of the index gains.

The big four banks all climbed higher, with ANZ the strongest, up 47?, or 2.2 per cent, at $21.81, while CBA rose 99? to $51.04, NAB 31? at $22.56, and Westpac 42? at $20.77.

Some traders suggested the run of gains was a sign that recent investor cautiousness had been overdone.

But a strategist with Deutsche Bank, Tim Baker, said much still depended on European policymakers.

"It's tricky to say [if the momentum will continue] because there are no more opinion polls ahead of the actual Greek election, they're in a blackout period," Mr Baker said. "Things look a bit more encouraging on the Spanish front, which looks a little closer to getting some help to recapitalise their banks, so that would be positive. But we're not there yet."

Meanwhile, Qantas shares remained in freefall after Tuesday's shock profit downgrade, failing to hitch a ride on the surging market.

The airline's stock shed a further 6.5?, or 5.8 per cent, to $1.06, closing at the lowest level since the company listed in 1995.