The S&P/ASX 200 index rose 41 points, or 0.7 per cent, to 6038, while the All Ordinaries climbed 42 points, or 0.7 per cent, to 6130. The Australian dollar was 0.1 per cent higher at US76.57c.

On Monday, the government predicted that the budget deficit will shrink faster than it previously expected, a development that will likely help Australia to retain its coveted AAA rating.

"The improvement in the budget and a cooling housing market give no reason for S&P to act on its negative outlook on Australia's AAA rating," NAB economist Ivan Colhoun said.

A special poll over the weekend that resulted in the country's ruling coalition retaining its wafer-thin parliamentary majority also helped sentiment. "A loss would have had serious repercussions," noted economists at ANZ.

Political developments in the US also worked to support the Australian market on Monday, with a long-awaited bill to cut corporate taxes looking set to win enough support to pass, possibly as early as this week, which boosted US stocks to fresh records and set the stage for gains in Australia.

An uptick in commodity prices on Friday following signs of sustained global economic strength helped the mining sector to rally on Monday, with BHP rising 2 per cent to $28.25 and Rio Tinto up 1.2 per cent to $71.43. Smaller miners that gained ground included Pilbara Minerals, up 12.2 per cent to $1.15, and Orocobre, which gained 7 per cent to $6.30.

Miners are one of two heavyweight sectors in the Australian market, the other being banks, and UBS equity strategist David Cassidy said that he still likes the mining sector heading into 2018.

"Valuations still look reasonable and there are significant upgrades to consensus 2018 estimates based on spot commodities," he said, adding that he sees a moderate advance for the overall market to 6275 in 2018.

Banks were also higher on Monday, with Macquarie up 1.9 per cent at $98.70 and Westpac up 0.4 per cent at $31.48.

ANZ surged 2.1 per cent to $28.82 after announcing it will launch a $1.5 billion share buyback after selling its life insurance unit, its wealth business and a 20 per cent stake in Shanghai Rural Commercial Bank.

Aconex shares soared 44.2 per cent to $7.63 after the construction software group received a $7.80 a share, or $1.6 billion, offer from US technology giant Oracle on Monday.

Aurizon lost 5.9 per cent to $5.09 after the Queensland Competition Authority drafted a decision capping Aurizon Network's allowable revenue at $3.89 billion from July 1 2017 to June 30 2021, nearly $1 billion lower than its requested cap.

Stockwatch

Shares in the business technology solutions firm Data#3 fell 13.2 per cent to $1.71 after it said late on Friday that it expects its first-half 2018 profit to be substantially lower than the previous comparable period when it posted a record result. It said that a number of projects have been delayed due to supply constraints in November and December and that the performance of its Business Aspect operation has been below par. Data#3 expects its second half performance will be strong and still expects to report an improvement on last year's full year profit. It also told shareholders that it will decommission the Data#3 cloud.

Australian dollar

The Australian dollar rose on Monday after the government predicted its budget deficit would shrink faster than previously expected. The Australian dollar was at US76.57??, within striking distance of Friday's high of US76.94?? - a level not seen since early November. The improved outlook means Australia's pristine AAA rating will likely remain intact. Aussie bulls also heaved a sigh of relief after the country's ruling coalition retained its wafer-thin parliamentary majority following a special poll over the weekend. A loss would have plunged the government into a parliamentary minority.

Bitcoin

CME Group, the world's largest derivatives exchange operator, began trading bitcoin futures with the contract opening at what is currently its session high and dropping over 6 per cent within the first half hour. "We saw a nice open on light volume, but pretty uneventful so far. I do think we could certainly pick up in volume. This is a brand-new asset class and I think perhaps a lot of investors want to sit back and see how this plays out before dipping their toes in this market," Spencer Bogart, partner at Blockchain Capital said.

House prices

Only 2,865 homes went under the hammer in the week to December 17, compared to 3,371 auctions in the previous week, preliminary figures from property data group Corelogic showed. Despite the slowdown in auction volumes, preliminary figures showed that 64.2 per cent of ended in a sale. That was up on the previous week's combined cities clearance rate, which - at 59.5 per cent - fell below 60 per cent for the first time this year. Meanwhile, home prices across the five capital cities combined dipped 0.2 per cent in the week, dragged down by a fall in Sydney.

NZ confidence

Consumer confidence in New Zealand fell for the third month in a row in December as consumers braced for an economic slowdown. The ANZ-Roy Morgan consumer confidence index dropped to 121.8 from 123.7 in the previous month. A reading above 100 indicates optimism and vice versa. "A degree of wariness is perhaps starting to creep into the forward-looking responses," said Sharon Zollner, chief economist at ANZ bank. A net 28 per cent of consumers said they expected to be better off financially in the year ahead, the lowest level since August 2016. Expectations for consumer price inflation over the next two years rose to 3.5 per cent from 3.1 per cent in the previous survey.