The benchmark S&P/ASX200 index was up 50.8 points, or 1.44 per cent, to 3582.2 while the broader All Ordinaries index gained 46.8 points, or 1.35 per cent, to 3515.0.
The stock market will not trade again until Monday, December 29.
CMC Markets corporate dealer Andrew Knight said the Australian market's upwards move was surprising given that US markets were lower overnight and pre-Christmas trading locally was typically thin.
"The banks on the whole are seeing a bit of buoyancy coming in, but there's no volume behind it,'' he said.
"The consumer stocks and the telcos seem to be standing out at the moment.
"Apart from that, it does seem to be driven by a bit of sentiment coming into the market after two down days this week.''
The resource sector was on a high.
BHP Billiton was up 35 cents to $28.84, while Rio Tinto added $1.22 to $36.59.
Oil and gas producer Woodside Petroleum improved 74 cents to $32.90 and Santos stepped forward 32 cents to $14.16.
Energy stocks were mixed.
AGL was down 18 cents at $15.27 as it made a $171 million takeover offer for coal seam gas (CSG) producer Sydney Gas.
Sydney Gas was up 15 cents to 42.5 cents.
The financial sector was mostly positive.
NAB ascended 51 cents to $20.11, Westpac rose 24 cents to $16.50, and ANZ was steady at $14.87.
Commonwealth Bank rose 11 cents to $27.15 as it said it would acquire up to $4 billion of mortgages originated by Wizard Home Loans.
Retailers ended on a good note.
Wesfarmers, which owns Coles, was up 72 cents at $16.92 and Woolworths jumped 67 cents to $26.40.
The peak retail industry body, the Retailers' Association, said that pre-Christmas sales were up on last year's record by 4 per cent.
The telcos also closed in good spirits.
Telstra was up 6 cents at $3.73 and Optus-owner Singapore Telecommunications rose 3 cents to $2.62.
In the media sector, News Corporation (the parent company of the publisher of news.com.au) hovered at $13.15 while Consolidated Media shed 2 cents to $1.85.
Fairfax Media was up 1.5 cents at $1.565.
Among gold stocks, Newmont was steady at $5.48, Newcrest dumped 64 cents at $31.78, and Lihir lost 4 cents at $2.81.
The price of gold in Sydney at 2.49pm was $US838.95 per fine ounce, down $US5.55 on yesterday's close of $US844.50.
Among other stocks, real estate investor and developer Goodman Group nudged up 1 cent to 70 cents as it completed capital management initiatives worth $1.2 billion.
On Wall Street overnight, the Dow Jones Industrial Average index lost 100.28 points, or 1.18 per cent, to 8419.49 stocks in thin trading as US growth and housing data showed that the US economy continued to struggle.
On the Sydney Futures Exchange, the March share price index futures contract was 67 points lower at 3583 on a volume of 14,311 contracts.
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