The S&P/ASX200 Financials index was up 2.1 per cent at 2.27pm (AEST), after bank stocks rose across the board.
EL&C Baillieu director Richard Morrow said the decision by Mr Buffett's holding company Berkshire Hathaway to purchase Goldman Sachs perpetual preferred stock, with a 10 per cent annual interest rate, had renewed confidence in the bank sector.
"If it's good enough for Buffett to throw $US5 billion at a New York bank then maybe we're out of the woods,'' EL&C Baillieu director Richard Morrow said.
Under a private agreement with Goldman Sachs, Berkshire Hathaway will also have the option of buying $US5 billion worth of common stock priced at $US115 a share at any time within five years.
Mr Morrow said the boost in the banking sector came after US markets rose overnight, underpinning a lift in the broader Australian market today.
"The first tangible sign we saw was a rise in the overnight futures in the US market and that's flowed through to a lot more confidence in our banks despite the mixed noises coming out of Canberra on short selling,'' Mr Morrow said.
By 2.30pm AEST, National Australia Bank (NAB) was up 5.83 per cent, or $1.39, at $25.25 while ANZ added 2.88 per cent, or 52 cents, to $18.56.
"ANZ and NAB are where people are short so that's where they're recovering,'' Mr Morrow said.
Commonwealth Bank of Australia firmed 1.15 per cent, or 51 cents to $44.73, Westpac edged 0.73 per cent higher to $24.68, and takeover target St George jumped 2.92 per cent to $32.41.
The wider market was also buoyed by confidence from the potential passage of the US Government's proposed $US700 billion rescue package bill currently moving through the US Congress, Steve Morris, manager of private clients at Paterson's Securities said.
Suggestions that NAB may be able to access the funds to pare back conduit-related losses did not affect trading in the stock, Mr Morrow said.
NAB may be eligible for inclusion in the rescue package if it can restructure its conduit assets through its US subsidiary, Great Western, Goldman Sachs JBWere wrote in a note to clients today.
JPMorgan and Citi have previously flagged expected write-downs of between $500 million and at least $1 billion for both NAB and ANZ.
JPMorgan says NAB could face a write-down of up to $1.5 billion from its $4.5 billion worth of exposures to conduits which are currently held in the hold to maturity portfolio despite likely trading well below book value.
"This must create a potential mark to market risk for NAB of between $500 million and $1.5 billion,'' JPMorgan said last week, adding that this would comprise the bank's tier one capital ratio.
Both Citi and JPMorgan have highlighted another $10 billion in exposures faced by ANZ relating to credit insurance purchased from monoline insurers on top of the bank's $226 million exposure to beleaguered US monoline insurer ACA Capital Holdings. The majority of these counter-parties hold AAA credit ratings, Citi said. On Monday, the US Federal Reserve approved applications from Goldman Sachs and its Wall Street investment bank rival Morgan Stanley to become bank holding companies, effective immediately.
The conversion of Goldman Sachs and Morgan Stanley to regulated commercial banks marks the end of an era of independent Wall Street investment firms.
Goldman Sachs is now the US's fourth largest commercial bank holding company.
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