MELBOURNE - The Australian share market closed more than three per cent higher on Tuesday, led by the banking and mining sectors, following a strong lead from United States and other overseas markets.

At the 1615 AEST close, the benchmark S&P/ASX200 index had risen 129.6 points, or 3.47 per cent, to 3,867.1, while the broader All Ordinaries index had lifted 120.8 points, or 3.23 per cent, to 3,858.8 points.

On the Sydney Futures Exchange, the September share price index futures contract was up 140 points at 3,843 on 28,052 contracts, according to preliminary calculations.

"Strong offshore gains got the ball rolling this morning, triggering a bout of short-covering," IG Markets research analyst Ben Potter said.

"Traders and investors are reconsidering their bearish stance heading into reporting season."

Mr Potter said positive comments on financial stocks overnight had helped settle pre-earnings season nerves.

Overnight, US banking stocks surged after analyst Meredith Whitney upgraded her rating on Goldman Sachs.

On the local bourse, among the major banks, National Australia Bank rose $1.06 cents to $23.00, Commonwealth Bank advanced $1.58 to $38.30, ANZ stepped forward 63 cents to $16.38 and Westpac improved 74 cents to $19.65.

In the resources sector, global miner BHP Billiton strengthened $1.59 to $33.79 and Rio Tinto gained $2.47 at $49.10.

Uranium producer Energy Resources of Australia was 57 cents richer at $21.67 after it posted a large jump in uranium oxide production for the June quarter thanks to increased mill throughput.

On Wall Street overnight, the Dow Jones Industrial Average index surged 185.16 points, or 2.27 per cent, to 8,331.68 on the back of a stronger financial sector.

In the gold sector, Newmont found five cents at $4.96, Newcrest picked up 24 cents at $30.04 and Lihir added four cents to $2.87.

The price of gold in Sydney was US$920.60 per fine ounce, up US$10.20 on Monday's close of US$910.40.

Among media stocks, News Corp was up 32 cents at $12.68 and its non-voting stock was 31 cents higher at $10.77. Fairfax was 4.5 cents heavier at $1.155 and Consolidated Media put on six cents at $2.66.

Telco Telstra ascended four cents to $3.41 and Optus-owner Singapore Telecommunications rose eight cents to $2.78.

Retailer Woolworths was up 43 cents at $26.70 and Wesfarmers, which owns Coles, gained 74 cents to $22.84.

Among other stocks, Asciano Group dipped three cents to $1.30 after chief executive Mark Rowsthorn moved to reduce his stake in the ports and rail operator from around 11 per cent to four per cent.

Hearing implant maker Cochlear shed $2.23 to $52.08 after it lowered its annual earnings guidance due to lower foreign exchange rates.

Pathology and radiology services provider Sonic Healthcare was up eight cents to $11.49 as it agreed to acquire German laboratory company Lademannbogen Laboratory for up to 11 million euros (A$19.64 million).

The top-traded stock by volume was oil and gas explorer Lakes Oil, with 43.48 million shares worth $611,560 changing hands. Lakes Oil was up 0.1 cents to 1.4 cents.

Preliminary nation turnover was 1.46 billion shares worth $3.67 billion, with 632 stocks up, 294 down and 319 unchanged.

- AAP