The Australian share market has rebounded from last week's plunge, led by the banks, after the Federal Government guaranteed all deposits for the next three years.

At 1018 AEDT, the benchmark S&P/ASX200 was up 209.2 points, or 5.28 per cent, at 4169.9, while the broader All Ordinaries gained 196.7 points, or 4.99 per cent, to 4136.2.

On the Sydney Futures Exchange, the December share price index futures contract surged 144 points to 4197, on volume of 14,013 contracts, after rising as high as 4228 shortly before market open.

Prime Minister Kevin Rudd announced on Sunday that the federal government would guarantee deposits of any size in Australian banks for the next three years.

The government has also guaranteed all term wholesale funding by Australian banks operating in international credit markets, and will buy a further $4 billion in mortgage backed securities, effectively pumping that money into the market through non-bank lenders.

Banking stocks surged. National Australia Bank jumped $2.25, or 10.82 per cent, to $23.05, Commonwealth Bank rose $2.51, or 6.35 per cent, to $42.06 and ANZ Banking Group increased $1.42, or 9.28 per cent, to $16.72.

Westpac climbed $1.70, or 8.42 per cent, to $21.89 and its takeover target St George Bank added $2.31, or 9.17 per cent, to $27.50.

Investment firm Macquarie Group jumped $3.24, or 11.36 per cent, to $31.76.

On Friday, the ASX200 index plunged 8.34 per cent, the biggest fall since the index was created in 1993, to finish a week in which about $188 billion of value disappeared from market capitalisation.

ABN Amro Morgans private client adviser Bill Bishop said the government's deposit guarantee had given the market a huge boost in confidence.

"They've demonstrated they're fair dinkum about this," Mr Bishop said.

"This is the first really solid move for the market to get its teeth into and it's a wonderful bounce to give people a bit of confidence."

Mr Bishop said the gain on Monday was unlikely to be a full scale turnaround in direction.

But, "it makes a change to be able to talk about some good news".

The big miners rose, BHP Billiton up $1.71, or 6.16 per cent, to $29.45, while rival and takeover target Rio Tinto gained $5.10, or 6.99 per cent, to $78.10.

The gold miners were among the few companies to fall, after the price of the precious metal fell late on Friday. Gold for December delivery fell $US27.50, or 3.1 per cent, to settle at $US859 an ounce on the New York Mercantile Exchange.

On Monday, Newcrest Mining lost 41 cents, or 1.6 per cent, to $25.23 and Lihir Gold dropped eleven cents, or 4.42 per cent, to $2.38. Newmont Mining fell 12 cents, or 2.4 per cent, to $4.88.

Property giant Stockland has expanded its domestic retirement business, buying Babcock & Brown Ltd's 14.4 per cent stake in Aevum Ltd for $26.9 million. Stockland jumped 51 cents, or 11.33 per cent, to $5.01.

Aevum was the most traded stock by volume, with 17.9 million shares changing hands for $26.9 million.

Aevum added 14 cents, or 10.29 per cent, to $1.50.

Iron ore miner Fortescue Metals Group has appointed Owen Hegarty and former Portman Ltd managing director Ian Burston to its board as non-executive directors. Fortescue advanced 42 cents, or 15.67 per cent, to $3.10.

Budget airline Jetstar will begin direct daily flights from Auckland to Sydney and the Gold Coast from April next year. Jetstar's owner, Qantas, gained 15 cents, or 5.81 per cent, to $2.73.

Rival budget carrier Virgin Blue added 1.5 cents to 36 cents.

Fund manager Valad Property Group has withdrawn its earnings guidance of seven to nine cents per stapled security given in August as a result of "unprecedented deterioration" in the financial markets.

Valad surged 5.2 cents, or 63 per cent, to 13.5 cents.

Market turnover was 357.6 million shares, valued at $1.33 billion, with 573 stocks up, 231 down and 196 unchanged.