Australian shares rose for the second day to a three-week high after strong economic data from the United States and Europe kicked off the year.

Local shares got a boost after strong gains in US equities as manufacturing and construction in the world's largest economy expanded at a faster pace than analysts had predicted.

Investors, keen to shrug off the gloom of 2011, also cited market-beating manufacturing data from China and a fall in unemployment in Germany as signals that the global economy may bounce back this year.

"Traders seem to have entered 2012 recharged, optimistic and seemingly ready to see the world through fresh eyes," IG Markets' Chris Weston said.


"The risks are still very real despite a good start to 2012, but the tape for the time being looks positive and this will encourage further short covering."

At the close yesterday, the benchmark S&P/ASX200 index was up 86.6 points, or 2.1 per cent, at 4187.8, while the broader All Ordinaries index was up 84.3 points, or 2 per cent, at 4239.5, the highest since December 14.

On the ASX 24, the March 2012 share price index futures contract was 89 points higher at 4160, with 37,578 contracts traded.

Miners led the pack higher, adding 3 per cent after metals prices climbed overnight.

BHP Billiton surged 4.1 per cent to A$36.22 while Rio Tinto climbed 2.9 per cent to A$63.15, both closing at a three-week high.

Energy stocks also got an extra boost after US oil prices rose to their highest point since May, fuelled by mounting concerns over a supply disruption from Iran.

Santos added 2.5 per cent to A$12.65 and Woodside rose 2.3 per cent to A$31.40.

Bandanna Energy closed up 1.6 per cent at 62c after the coal explorer announced it was hoping to get funding to develop its mines in Queensland's Bowen Basin as it pursued discussions with a number of third parties.

Even the financial sector managed to find some joy, gaining 1.8 per cent, despite some investors' concerns that the imminent roll-over of A$120 billion of debt in Europe could put pressure on banks' funding sources.

The big four banks added between 0.8 per cent and 1.9 per cent.