The S&P/ASX200 jumped 121.7 points on Monday, up 1.39 per cent to 8,894, as the broader All Ordinaries rose 122.3 points, or 1.37 per cent, to 9,063.8.
Oil prices have fallen more than 12 per cent since the weekend on news the US and Iran had paused hostilities after 13 days of attacks, with Brent Crude dropping to $US86.40 a barrel from a peak above $US102 on Thursday.
Australian equities and indices across Asia have made a strong start to the week, but whether the detente could support a sustained peace agreement was yet to be seen, Moomoo market Strategist Michael McCarthy said.
"The reality of this is that it's going to be very difficult for the US to end the Middle East conflict on any terms that they're going to like, and the bond market is sending clear signals that the impact on inflation is its big worry," Mr McCarthy told AAP.
Bond traders sold down US treasuries last week, pushing 10-year yields to their highest levels this year, as inflation concerns weighed on the appeal of fixed-income assets.
"It's a divergence at the moment - interest rate traders are saying one thing and share traders are saying another, and unfortunately I think the bond traders are going to be right," Mr McCarthy said.
Materials stocks carved out a 2.4 per cent gain, tracking with mega miners BHP and Rio Tinto despite largely steady copper and iron ore futures, while gold producers also advanced.
Gold itself hovered just below $US4,100 ($A5,849) an ounce, as potential peace prospects struggled to lift the precious metal as inflation and interest rate worries loomed.
"The spot gold price has moved up, but I think it is likely range-bound in the near term until we see a meaningful resolution between the US and Iran," Global X ETFs investment strategist Justin Lin said.
The heavyweight financials sector jumped 1.2 per cent in a broad-based rally, while IT, real estate trusts, industrials and health care stocks also posted solid gains.
Consumer-facing sectors improved, with cyclicals and staples up more than 0.7 per cent.
In company news, Myer shares tumbled by 12 per cent after deteriorating consumer sentiment and higher promotional costs weighed on its June quarter sales growth.
Evolution Mining will acquire Carnaby Resources in a $213 million scrip deal, propelling Carnaby's share price almost 60 per cent to just shy of Evolution's offer of 77 cents per share.
Financial services group Perpetual Ltd also advanced after receiving an improved offer from Swedish private equity firm EQT, valuing it at roughly $2.7 billion.
The Australian dollar is buying 70.06 US cents, up from 69.83 US cents on Friday at 5pm, as currency traders keenly await Wednesday's June inflation figures for indications of the Reserve Bank's path ahead on interest rates.
ON THE ASX:
* The S&P/ASX200 rose 121.7 points, or 1.39 per cent, to 8,894
* The broader All Ordinaries dropped 122.3 points, or 1.37 per cent, to 9,063.8
One Australian dollar trades for:
* 70.06 US cents, from 69.83 US cents at 5pm AEST on Friday
* 114.55 Japanese yen, from 114.37 Japanese yen
* 61.41 euro cents, from 61.33 euro cents
* 52.48 British pence, from 52.41 pence
* 120.72 NZ cents, from 120.74 NZ cents
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