The Australian stock market has surged to close up 3.1 percent following a strong lead from the US and renewed hopes of a fall in domestic interest rates, dealers said.

The benchmark S&P/ASX 200 index bounced back from Tuesday's losses to closeup 148.7 points at 4,969.1, while the broader All Ordinaries gained 136.1 points to 5,018.1.

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Some 1.41 billion shares worth 6.3 billion dollars changed hands with 611 stocks ending the day up, 475 down and 303 unchanged.

Market benefits from RBA comments

Dealers said the market benefited from comments from the central Reserve Bank of Australia yesterday suggesting that interest rates might be on the way down from their 12-year high of 7.25 percent.

"The prospect of a cycle of interest rate cuts, going forward, has really propelled the market on quite well," Macquarie Private Wealth senior adviser Sean Conlan said.

Financial stocks made the greatest gains, with the Commonwealth Bank climbing 6.3 percent to 43.85 dollars and National Australia Bank up 5.1 percent to 26.00 dollars.

Among the other major banks, Westpac Banking Corp shot up 5.3 percent to 22.99 dollars and ANZ Banking Group rose 5.8 percent to 17.99 dollars.

Despite the commodity price falls which hurt the major mining and energy stocks on Tuesday, BHP Billiton rose 3.9 percent to 37.22 dollars and Rio Tinto Ltd gained 3.3 percent to 114.40 dollars.

The falling crude oil price hit energy stocks with Santos shedding 2.4 percent to 16.55 dollars and Woodside Petroleum down 0.9 percent to 50.72 dollars.