The sharemarket posted strong gains amid signs politicians in the US might soon reach a deal over the budget impasse and debt ceiling.
The benchmark S&P/ASX 200 Index gained 51.2 points, or 0.98 per cent, to 5259.1, while the broader All Ordinaries added 52.7 points, or 1.01 per cent, to 5259.2.
The prospect of a deal in the US had buoyed investors, Lonsec client adviser Michael Heffernan said.
"That's clearly the main factor at play," he said. "The US has got the money to pay the bills, they've just saddled themselves with an artificial construct."
Mr Heffernan said the local market was approaching a new five-year high as materials, energy, industrials and financial stocks continued to rise.
BHP Billiton gained 34¢ to $35.40, Fortescue Metals added 29¢ to $5.26 and Rio Tinto rose $1.55 to $63.20 after it said it was confident of hitting its 2013 iron ore production target.
Among the banks, Westpac added 29¢ to $33.24, ANZ gained 33¢ to $31.47, Commonwealth Bank rose 49¢ to $73.01 and NAB was 25¢ higher at $35.01.
Telstra was 7¢ higher at $5 as it maintained its forecasts of low single-digit income and earnings growth this financial year.
Tabcorp was steady at $3.25 after its revenue in the September quarter rose by more than 3 per cent. Crown shares gained 59¢ to $16.44 and Echo Entertainment dropped 13¢ to $2.59, after the Queensland government raised the prospect of issuing new casino licences.
Gold was $US1269.49 an ounce, down $US4.01.
The prospect of a deal on US debt also buoyed the dollar, which was trading late on Tuesday at US95.33¢, up from US94.67¢.
Westpac interest rate strategist Tim Jung said the apparent progress in Washington boosted market sentiment and drove bond markets lower.
"Most of the selloff happened overnight and that was on the chances of the US debt ceiling negotiations being resolved," he said.
The release on Tuesday of the RBA's October board meeting minutes also helped weaken expectations of a cash rate cut in the next couple of months and helped force bond prices down.
"The market is becoming more convinced, rightly or wrongly, that the RBA has finished with its easing cycle," Mr Jung said.