AFTER drifting lower for much of the week, the sharemarket yesterday staged its second-biggest daily rise in seven months after a pledge from European officials to keep the region's common currency together.
European Central Bank president Mario Draghi's promise to do "whatever it takes" to defend the euro sparked a rally on global markets.
Australian shares followed global markets higher, surging more than
1.5 per cent. For the week, the benchmark S&P/ASX 200 Index gained 10.68 points, or 0.25 per cent, to 4209.8 points.
Resource and financial stocks drove the market higher, with BHP Billiton up 45? at $31.42 and Rio Tinto jumping $1.49 to $52.
The big four banks all moved higher, Commonwealth rising 77? to $56.18, ANZ 42? to $23.08, NAB 41? to $24.25 and Westpac 39? to $23.
Analysts admitted that, with Spanish government bond yields hitting euro-era highs and worries that Greece could again be forced to restructure its debt, they had been caught off guard by Mr Draghi's assurance overnight that the ECB was willing to restart bond purchases.
The week's trading could be roughly divided into two halves.
Several big companies such as BHP Billiton and Rio Tinto had indicated their full-year profits would be much lower than expected. Their warnings came on top of reports that earnings forecasts had been downgraded in the past six months by an average of 5 per cent. Stocks lost ground as investors prepared for a downbeat profit reporting season. .
Data showed inflation in the June quarter slid to a 13-year low, clearing the path for the Reserve Bank to cut the cash rate again if conditions in Europe deteriorate further.
However, on Thursday a slew of banks, including UBS, JPMorgan, HSBC and CBA, walked away from earlier calls that the rate cut would come next month.
For the week, Caltex shares lost 48? to $14.17, after it committed to shutting its Sydney plant. It refused to guarantee the long-term future of 660 workers at its Brisbane refinery.
Billabong shares gained 17? to $1.35 after the troubled surfwear retailer appeared to be going cold on the $695 million takeover offer from the US private equity group TPG.
Woolworths gained $1.08 at $28.70 after overcoming tough trading conditions to lift its sales for the 2011-12 year by 4.7 per cent to $56.7 billion.
Qantas rose 2.5? at $1.09 after the national carrier confirmed it was in talks with several airlines about potential alliances, including Dubai's Emirates.
Leighton rose 42? to $16.64 after its mining services arm, Thiess, won a $2.3 billion contract to extend operations at the Lake Vermont coalmine in the Bowen Basin.
The dollar hit a one-week high after shooting higher on Thursday evening in response to Mr Draghi's London statement. At the 5pm close, it was at US104.26?, up from US103.39? on Thursday.