Across Asia, regional markets have rebounded strongly, shrugging off earlier weakness following a second straight night of gains and encouraging economic data on US markets. The Shanghai Composite is the best performer, up 2.9%. Elsewhere, the Nikkei, Hang Seng and Kospi are higher between 0.5% and 1.4% firmer.

In Australia, the ASX 200 closed the session 0.9% stronger at 4396.3, only one point from its session high. After early weakness where markets had been in negative territory, all sectors finished in the black with the energy, industrial, materials and financial sectors all convincingly higher. This was certainly an unusual turn of events - to see the market rallying off earlier losses on a Friday afternoon - nonetheless, it might be a definitive signal that we are in fact seeing a reversal in sentiment and positioning ourselves for a decent rally.

To see investors willing to put money to work on a Friday afternoon is very positive indeed, especially after we saw profit taking this morning. You'd normally expect the profit taking to continue for most of the session, especially given this is the first up week since mid-June.

Today's action shows a change in sentiment is underway. A few pieces of positive economic data from the US has bolstered the mood, with participants much happier with the prospects for the upcoming US Q2 reporting season, which kicks off with Alcoa on Monday.

On top of the positive overnight leads, this morning's surprise interest rate hike from the Bank of Korea has also helped boost local sentiment. The move by the central bank, which is its first hike since the GFC shows its confidence in the recovery.

The energy sector topped the leader board today, gaining 2.8% on the back of a 9.7% jump in Santos. Santos surged after the Australian Financial Review reported it was in talks with Royal Dutch Shell about Shell taking a 30-35% stake worth about $2 billion in its Gladstone LNG project. Santos hasn't mentioned Shell but said discussions are ongoing with a number of parties. A comment from UBS said the speculation is probably on the money. UBS said even if the reports are half correct, it's got to be a big positive for Santos because people were speculating there was a $2 billion capital raising in the wind. Now it looks like they won't need to raise money. Shell would be a great operator of the project and that would give some certainty going forward.

Elsewhere, Paladin, Origin, Caltex and Oil Search were all up between 2.3% and 3.1%.

The industrial sector was a solid contributor, ending 0.9% stronger on the day. Among the major names to enjoy positive sessions were CSR, Macquarie Airports, James Hardie, Toll Holdings and Leightons, all of which finished firmer between 1.3% and 3.5%.

Toll Holdings said it is set to become one of the biggest freight forwarders in the UK with the approximately $150 million purchase of two new businesses. Toll is buying WT Sea Air Group and Genesis Forwarding Group which will together generate about $250 million in revenue this year. "These two UK headquartered acquisitions combine to provide significant scale to our Toll Global Forwarding division in Europe," Toll MD Paul Little said. Toll said the purchases are expected to be earnings per share accretive in year one. The deals indicate that Toll is acting opportunistically to pick up assets in the struggling European market and deliver on its plans to muscle up in scale in Asia, Europe and the US through an aggressive acquisition program.

The financial sector had a strong session too, rising 0.9%. Macquarie Group was again the best performer, finishing the session 2.8% firmer while the big four banks were all stronger between 0.5% and 1.2%.

In a report from Morgan Stanley, it reckons it's time for a pause in the recent decline in Aussie bank share prices. They have fallen around 12% since the start of the 1H reporting season, although MS cautions that risks remain for the sector. The broker still sees downside risks to earnings and valuations from ongoing funding challenges, lower retail bank profitability and the possibility of weaker-than-expected economic outcomes in Australia over the next two years. The broker retained its overweight rating on National Australia Bank but trimmed its price target to $26.20 from $26.50. MS kept its equalweight rating on Westpac with a revised a target of $22.70 vs $22.90 previously. Meanwhile, the broker repeated its underweight stance on ANZ Bank, with a $20.80 target, down from $21.00. Commonwealth Bank remains the brokers least preferred bank, with an underweight rating and a revised target of $46.40, down from $47.30.

Having spent much of the first half of the session dragging the market lower, the materials sector reversed course in afternoon trading to finish 0.8% higher. Heavyweight miners BHP Billiton and Rio Tinto ended firmer by 0.7% and 1.6% respectively while gold miners Newcrest Mining and Lihir Gold also overcame earlier losses to end higher by 0.4% and 0.2%.

In a report from Morgan Stanley, it said BHP Billiton Chief Executive Marius Kloppers has told analysts that if the right assets came up at a suitable price, the company would increase its exposure to the Gulf of Mexico. That said, Kloppers noted during the global financial crisis that companies with stressed balance sheets managed to hold their tier-one assets. He expects this will remain the case with BHP Billiton's partner in the Gulf, referring to BP. Kloppers also said that BHP expects BP's Gulf of Mexico oil spill will result in increased regulatory oversight, and extended drilling and production schedules.

Ben Potter Research Analyst

IG Markets - CFD trading