THE sharemarket closed at its highest for the year, with investors betting on US policymakers to back a deal to avert $US600 billion ($A596 billion) in federal tax rises and spending cuts.
At the close on Wednesday, the S&P/ASX 200 Index was 22.6 points, or 0.49 per cent higher at 4617.8.
Negotiations between Democrat and Republican leaders to avert the so-called fiscal cliff have been a big influence on global markets for a month, but recent reports suggest a deal is getting closer.
The Australian market closed higher for an eighth day out of nine sessions, said CommSec analyst Steve Daghlian.
"It has been a very strong run as we get close to the end of the year, and we are up 12.5 per cent for 2012," he said.
"Most markets are at good levels. European markets are at 18-month highs."
Most indices finished with gains, and the big miners benefited from a rally in the iron ore price.
Rio Tinto closed 64¢, or 1.6 per cent better, at $65.71, BHP Billiton jumped 40¢ to $37.06 and Fortescue Metals lifted 6¢ to $4.66. Billabong shares fell sharply after it slashed its earnings forecast and announced it was considering its fifth - and lowest - takeover offer in 10 months. Its shares resumed trading after being in a halt for two days and closed 13¢, or 13.3 per cent, lower at 85¢.
Whitehaven Coal shares made the biggest gains on the ASX 100, adding 26¢, or 8.1 per cent, to $3.38 after it said it had held talks with China's largest coal company. Most sectors were up, with gold an exception, after an easing in the gold price overnight. Gold stocks were 2.5 per cent weaker, led by Newcrest Mining, which fell 72¢, or 3.1 per cent, to $22.56.
National turnover was 1.65 billion securities worth $4.33 billion, with 493 stocks trading up, 420 down and 375 unchanged.
The dollar was trading slightly lower at US105.16¢, down from US105.34¢ on Tuesday.
Meanwhile, bond futures prices eased as traders prepare for the Christmas break and monitor developments in US.
UBS interest rate strategist Matthew Johnson said local bond futures moved a little higher on Wednesday morning in response to a newspaper interview with Reserve Bank Governor Glenn Stevens.
Mr Johnson said the market interpreted the report as a sign that the bank was willing to cut the cash rate further if necessary. It cut the cash rate to 3 per cent in December, from 3.25 per cent.
Positive sentiment surrounding the US debt negotiations had had "surprisingly little" impact on the local bond market, Mr Johnson said.