The share market has closed higher in very thin trade after a two-day Christmas break, with retail stocks seeing the biggest gains.
The All Ordinaries rose a third of a per cent to 4,661, and the ASX 200 posted a similar gain, closing on 4,648.
European markets were closed overnight but stocks on Wall Street reversed, as investors watch for developments on the US budget impasse.
US president Barack Obama is cutting short his Christmas holiday to resume talks on the fiscal cliff with Republicans in Washington tonight.
They have got just four days to prevent $600 billion of spending cuts and tax increases that could tip the US economy into recession.
On local markets, retail shares were in favour as investors hope for strong post-Christmas sales.
The Australian National Retailer's Association says online sales have boosted rather than undermined in-store trade during the sales.
David Jones and Myer both jumped just under 3 per cent to close at $2.41 and $2.13 respectively.
Struggling surf wear retailer Billabong jumped 4.8 per cent to 87 cents.
Iron ore miners also posted solid results, as prices for the steel making ingredient rebound to just over $US135 a tonne.
BHP Billiton rose 0.4 per cent and Rio Tinto gained just under 1 per cent.
Fortescue Metals rose 4.1 per cent to $4.53 after it said it would re-start expansion work at its Kings deposit in Western Australia's Pilbara region next month.
In September, Fortescue delayed work on the deposit as it struggled to meet its debt commitments and the iron ore price tumbled.
The company says it will shift workers from its nearby firetail deposit, instead of re-hiring the workers it sacked back in September.
The big four banks mostly declined, but the National Australia Bank rose a third of a per cent.
Telstra closed at a more than four-year high of $4.40.
Spot gold has dropped to around $US1,655.50 an ounce, while West Texas crude oil closed at $US90.70 a barrel.
Tapis crude was worth $US116.85 a barrel at close.
The Australian dollar closed down against its major counterparts amid concerns about the fiscal cliff.
But it was relatively flat against the yen, after Japan's new prime minister Shinzo Abe said his government would pursue "bold" monetary policy and take steps to combat deflation.
Around 5.00pm (AEDT) the dollar was buying 103.6 US cents, 78.3 euro cents, 88.8 Japanese yen and 64.2 British pence.