THE Australian dollar closed firmer as optimism on Wall Street ahead of this weekend's Group of 20 meeting in Washington helped risk appetite.

At 5pm (AEDT) the Australian dollar was trading at $US0.6558/63, up 1.41 US cents, or 2.2 per cent, from yesterday's close of $US0.6417/22.

During the day the local unit moved between an early low of $US0.6484 and a mid-morning high of $US0.6695.

The Australian dollar hit its high point early in the session after Wall Street enjoyed a 6.8 per cent surge.

But the local share market's less dramatic gain of 1.4 per cent kept the currency below $US0.6600 in late afternoon trade.

ANZ senior currency strategist Tony Morriss said financial markets were optimistic ahead of the G20 meeting, where Prime Minister Kevin Rudd will discuss the global crisis with outgoing US President George W. Bush.

"There's speculation the IMF (International Monetary Fund) will be given broader powers to support troubled emerging markets," Mr Morriss said.

"We might see big, co-ordinated rate cuts."

A late surge on Wall Street in the final hour of New York trade pushed the Australian dollar past $US0.6600 in the first half of the local session.

Mr Morriss said the firmer finish on Wall Street also helped the Australian dollar, as a weaker US dollar helped push up commodity prices.

"It got a double whammy," he said.

Meanwhile, the Australian sharemarket reversed its sharp losses of mid-week to close over 1 per cent up following a strong US lead and higher base metals prices overnight.The local bourse was more than 4 per cent higher in morning trade but closed about 1.5 stronger, coming off as traders sold into the rally.

The benchmark S&P/ASX200 index was up 50.8 points, or 1.37 per cent, at 3748.1, while the broader All Ordinaries index had risen 53.6 points, or 1.46 per cent, to 3726.0.

On the Sydney Futures Exchange at 4.18pm (AEDT), the December share price index futures contract was 29 points higher at 3782, on a volume of 34,366 contracts.

Despite the stronger finish, the big losses mid week took $69 billion from the value of the All Ordinaries index, compared with last Fridays's close.

IG Markets research analyst Ben Potter said mining and energy stocks contributed to today's gains, up 2.9 per cent following a rebound in the price of oil overnight.

"Oil gained 3.7 per cent after falling to near 22-month lows of $US54.67 per barrel," Mr Potter said.

"This was despite the International Energy Agency lowering its 2008 and 2009 demand forecasts.

"They are now expecting demand to grow by 120,000 barrels in 2008, down from a previously forecast 330,000 barrels."

Among energy stocks, Woodside was steady at $36.90 after touching an intraday high of $38.92, Oil Search had surged 35 cents, or 7.37 per cent, to $5.10 and Santos had gained 55 cents, or 4.25 per cent, to $13.50.

Mining giant BHP Billiton had jumped $1.40, or 5.6 per cent, to $26.40 and its takeover target Rio Tinto had leapt $3.00, or 4.35 per cent, to $72.00.

During the morning, the local unit moved between an early low of $US0.6484 and a mid-morning high of $US0.6695.

A late surge on Wall Street in the final hour of New York trade sparked a surge in the Australian dollar early this morning.

The currency, which had hit a two-week low of $US0.6342 in offshore trade, surged past $US0.6600 in the first half of the local session.

The Australian dollar gained one US cent as New York's S&P 500 index finished 6.9 per cent firmer.

AAP