A "Santa Claus rally" has driven the share market to its strongest session in almost 18 months, adding $40 billion in value.
In a third straight day of gains, the market rose almost 2.5 per cent, its best performance since early July 2013.
Morgans client adviser Matt Hollyman said US Federal Reserve assurances that it can afford to be patient in deciding when to lift interest rates drove the local gains.
"That was positive for equity markets and positive for risk assets," Mr Hollyman said.
Every sector rose, and the four major banks and big mining companies were all up more than two per cent.
"The Santa Claus rally has finally arrived," CMC Markets chief market strategist Michael McCarthy said.
Commonwealth Bank lifted $1.91 to $83.71, Westpac gained 90 cents to $32.48, ANZ added 70 cents to $31.68 and National Australia Bank was 93 cents higher at $32.66.
BHP Billiton rose 94 cents to $28.98, Rio Tinto climbed $1.56 to $56.29 and Fortescue Metals gained five cents to $2.55.
Even with a fall in oil prices overnight, energy companies also posted gains.
Santos rose three cents to $7.99 after announcing a new $1 billion debt facility, Woodside Petroleum added $1.17 to $37.77 and Oil Search was six cents stronger at $7.68.
Telstra added seven cents to $5.89, its highest price since 2001.
* At the close on Friday, the benchmark S&P/ASX200 index was up 127.8 points, or 2.45 per cent, at 5,338.6.
* The broader All Ordinaries index was up 123 points, or 2.37 per cent, at 5,312.7.
* The March share price index futures contract was 145 points higher at 5,309, with 32,235 contracts traded.
* The price of gold in Sydney at 1700 AEDT was $US1,198.56 per fine ounce, down 34 cents on Thursday's price of $US1,198.90.
* National turnover was 2.6 billion securities worth $10.9 billion.