The market was up from the outset, recording strong early gains that lasted until the end of the session. The benchmark S&P/ASX 200 index surged close to 100 points, or by 1.9 per cent, to 5266.1, while the broader All Ordinaries put on 1.8 per cent to 5312.6.

"We've recovered all the losses for the past month," said Commsec market analyst Steven Daghlian. This was despite the fact that "there were no major drivers from Wall Street and there were no big changes to the commentary in the Reserve Bank statement".

Mr Daghlian said it was the blue-chips who led the market higher.

"BHP is up over 3 per cent today so that certainly [helped]. There were a few standout stocks today but really it was the banks who were lifting things the most, up more than 2 per cent as a sector."

IG Market analyst Angus Nicholson called the session "a fine display of bottom picking".

"Dick Smith bounced back today after losing more than 50 per cent the previous day on their financial year 2016 earnings warning. Metcash also saw strong gains as its recent earnings update seemed to show that the worst was over and that hopefully it was only up from here. Both consumer discretionary and staples gained more than 2 per cent."

Rates on hold 

BHP's gain came despite iron ore falling 3.4 per cent to $US42.97 per tonne, a fresh multi-year low, with increasing prospects of Australia's largest mineral export trading with a $US30-handle.

The Reserve Bank, meanwhile, kept interest rates rates on hold at 2 per cent, which "surprised no one," ANZ economist Felicity Emmett said. Moreover the post-meeting statement was a virtual carbon copy of last month's, suggesting to economists that the central bank remains comfortable with current monetary settings.

Among the blue-chips, BHP soared 3.6 per cent to $18.75, recovering some of the heavy losses incurred in previous sessions. Rio Tinto also rode the wave of sentiment, lifting 2.2 per cent to $46.92.

Telstra gained 2.4 per cent to $5.49.

The banks rose strongly: ANZ 2.3 per cent to $27.79, Commonwealth Bank 2 per cent to $80.99, National Australia Bank 1.8 per cent to $29.91 and Westpac 2 per cent to $32.79.

Dick Smith restored a quarter to its value after shareholders slashed its shares 57 per cent on Tuesday, pushing its market value to less than $70 million, following a pessimistic ASX announcement.

The bounceback came despite the electronics retailer preparing to kick off a "70 per cent off everything" sale to clear excess stock, potentially prompting rivals to follow suit. The stock finished 25 per cent higher at 35 cents.

JB Hi-Fi lost ground following the likelihood of a price war among electrical retailers, falling 1.8 per cent to $18.95. 

China manufacturing slows 

Slater and Gordon, who shares were virtually wiped out last week after legislative changes in the UK that affected compensation payouts to road accident victims, also bounced back, lifting 28.1 per cent to $1.18.

Metcash was another of the day's strong performers, closing 13.5 per cent higher to $1.68.

News that activity in China's manufacturing sector contracting more than expected in November, according to an official survey, failed to dampen the ASX rally.

The official Purchasing Managers' Index (PMI) stood at 49.6 in November, compared with the previous month's reading of 49.8 and below the 50-point mark that separates growth from contraction on a monthly basis.

Analysts polled by Reuters predicted a reading of 49.8.