The benchmark S&P/ASX 200 Index lifted 0.9 per cent on Monday to 5459 points, while the broader All Ordinaries Index added 0.8 per cent to 5441.9 points.

Local shares opened higher on Monday after taking a positive lead from offshore. Equity markets in the United States closed higher on Friday night, and the results of the European Central Bank's Asset Quality Review and Stress Tests released on Sunday night were met with relief. As expected, 25 banks failed the test but none of Europe's largest banks were found lacking.

"Markets seem to have found a foothold over the past week even though overall investor sentiment remains highly cautious," Perpetual Investments head of investment markets research Matthew Sherwood said.

The biggest event in global markets this week is tipped to be the policy statement at the conclusion of the US Federal Reserve Open Markets Committee meeting, due early Thursday morning, Australian time.

It is expected the decision will herald the end of quantitative easing in the US and investors are anxious for any guidance on when interest rates might start to rise.

"We could see an uptick in volatility post the FOMC meeting at the end of this week," Forager Funds Management chief investment officer Steve Johnson said.

He pointed to the "flash crash" in US bond markets earlier this month as proof that "crazy things" could happen as interest rate normalisation begins.

Mr Johnson said he was concerned that the heavy weight of short positions held by US hedge funds against the Australian dollar would make it hard for the currency to depreciate in the coming months.

Strong gains in the big four banks led the bourse. ANZ Banking Group added 1 per cent to $33.34 before entering a trading halt shortly before the market closed. The company said only that the halt was "pending a release" and is due to expire on Wednesday, however it is understood the bank inadvertently released some market sensitive figures ahead of delivering its full-year profit result on Friday.

Commonwealth Bank of Australia rose 1.6 per cent to $80.02, Westpac Banking Corporation lifted 1 per cent to $34.56. and National Australia Bank, which reports full-year results n Thursday, gained 0.8 per cent to $34.53. Regional lender Bendigo & Adelaide Bank rose 0.8 per cent to $12.15 despite managing director Mike Hirst telling the annual general meeting the outlook was "mixed at best".

Telstra Corporation gained 0.7 per cent at $5.54. Among the biggest retailers, Woolworths rose 1 per cent to $35.19, while Wesfarmers, owner of Coles, rose 1.3 per cent to $43.06.

Resources giant BHP Billiton edged up 0.2 per cent to $33.81, although most of the miners were weaker despite the spot price for iron ore, landed in China, rising 0.2 per cent to $US80.48 a tonne.

Rio Tinto fell 0.4 per cent to $59.79, while iron ore miner Fortescue Metals Group dropped 3.5 per cent to $3.35.

Qantas Airways lifted 5.3 per cent to $1.50 as investors embraced the turnaround story pitched at last week's AGM as the company posted a return to profit. UBS analysts upgraded their recommendation to "buy".

With no significant economic releases offshore or domestically, a spate of local merger and acquisition activity helped buoy sentiment.

Plasma product and vaccine maker CSL rose 0.8 per cent to $76.28 after unveiling a $US275 million $313.50 deal to buy the flu vaccine division of Swiss pharmaceutical giant Novartis.

Broadband provider Amcom surged 12.4 per cent to $2.09 after Vocus Communications acquired a 10 per cent stake and announced plans to merge the businesses. Shares in Vocus added 2.5 per cent to $5.44.

Retail Food Group was the best-performing stock in the ASX 200, climbing 9.1 per cent to $5.30, as it successfully closed a $40 million equity raising at $4.80 per share to fund its acquisition of Gloria Jean's Coffee for $163.5 million.

Nickel miner Western Areas was the worst-performing stock in the ASX 200, down 5.2 per cent to $4.20.