Investors waded back into the share market after Europe's top central banker vowed to do "whatever it takes to preserve the euro".
The All Ordinaries index jumped 1.5 per cent to close at 4,234 and the ASX 200 index climbed 62 points to 4,210.
The strong gains today left the market slightly higher for the week, offsetting Monday's heavy losses.
Tonight, investors will turn their attention to gross domestic product data for the second quarter due out in the United States.
However, today investors were focussed on comments from European Central Bank president Mario Draghi.
At a pre-Olympics function in London, Mr Draghi said the eurozone was much stronger than people believed and pledged that the central bank was ready to act to save the common currency.
International markets rose on the news, as did commodity prices and that boosted the mining heavyweights.
BHP Billiton added 1.5 per cent to $31.42 and Rio Tinto jumped 3 per cent to $52.
Fortescue had an even stronger gain, rising 3.75 per cent to $4.15.
Newcrest Mining shares gained 3.4 per cent to $23.14, as gold prices rose.
However, Intrepid Mines fell 4.1 per cent to 24 cents after it posted a first-half loss of $31.9 million, and as it seeks to resolve issues with its Indonesian joint venture partner that has suspended operations at their East Java project.
Telstra shares again had a solid result, closing 0.8 per cent higher at $3.96.
The telco announced a series of price rises for its fixed and mobile phone customers.
Surfwear retailer Billabong says it has opened its financial accounts to private equity bidder TPG Capital.
On Monday, TPG made a second bid for the company worth $1.45 cents a share, after Billabong rejected TPG's first offer of $3.30 a share in February.
Billabong shares were unchanged today at $1.35, as the company is yet to commit to the takeover offer and due diligence is likely to take several weeks.
The big four banks all gained strongly on the prospect of improved financial conditions in Europe: ANZ led the way with a 1.9 per cent gain to $23.08, while CBA had the smallest gain of 1.4 per cent.
Currencies and commodities The Australian dollar was carried along by the general financial market rally as investors returned to riskier assets.
Around 5:30pm (AEST) it was buying 104.3 US cents and 84.9 euro cents.
It was also buying 81.65 Japanese yen and 66.5 British pence.
West Texas crude oil was selling for $US90.09 a barrel, and Tapis crude was up strongly at $US111.15 a barrel.
Spot gold had jumped to $US1,619 an ounce.