The Australian stock market and the Australian dollar both closed higher on Tuesday.

Mounting tension in the Middle East raised concerns about the supply of commodities and boosted gold, energy and resources stocks, as well as the dollar

At the 1615 AEDT close, the benchmark S&P/ASX200 index was 33.1 points, or 0.91 per cent, higher at 3,654.2 while the broader All Ordinaries index added 37.3 points, or 1.05 per cent, to 3,591.5.

On the Sydney Futures Exchange, the March share price index futures contract was up 65 points at 3,653 on a volume of 12,886 contracts.

CMC Markets market analyst David Taylor said trading was thin because many investors were still on holiday, so significant movement in any of the heavyweight stocks tended to drive the whole market.

Energy stocks gained after the price of oil for February delivery rose $US2.31, or 6.15 per cent, to $US40.02 a barrel in New York on Monday.

Woodside Petroleum rose $1.16, or 3.34 per cent, to $35.93, Santos improved 10 cents to $14.20, and Oil Search found 19 cents at $4.59.

Among resources stocks, global miner BHP Billiton was up 74 cents at $29.65, and Rio Tinto added 46 cents to $37.05.

OZ Minerals remained in its lengthy trading halt at 55 cents, as it was granted a two-month extension to refinance $US560 million ($A816 million) of debt, but the company warned it may run out of funds before then.

Meanwhile, At 1700 AEDT, the Australian dollar was trading at $US0.6914/18, up from Monday's close of $US0.6864/68.

During the day, the local unit moved between $US0.6855 and $US0.6931.

CMC Markets foreign exchange dealer Tim Waterer said firmer resources prices boosted the demand for commodities currencies such as the Australian dollar.

Gold, the nation's third most valuable export, was down $US11.45 to $873.90 at 1715 AEDT from Monday's local close, but still up $US32.25 from two trading days before.

"That has provided a good block of support for the commodity currencies such as the Australian dollar."
Mr Waterer said currency markets were being driven by concerns on the conflict on the Gaza Strip between Israel and Hamas and low liquidity as 2008 came to an end.

"The focus will be on the Middle East tension but another thing to consider is the market is very thin," he said.

AAP