Chinese manufacturing data and domestic stimulus hopes sparked a sharp rally from an early dip into the red, but it was mostly the major banks, not miners, that were in demand.
The S&P/ASX 200 index traded in and out of the red before closing 22.4 points, or 0.47 per cent, up at 4810.2 points, outstripping the lacklustre lead from Wall Street, after Reserve Bank board member Heather Ridout entered the political fray over achieving a budget surplus by saying in a newspaper report she was in favour of "active management" of the economy to offset the slowing mining investment boom.
Miners struggled despite a firmer spot iron ore price, with OZ Minerals leading losses after missing production forecasts.
The January HSBC China flash PMI index climbed to 51.9 points from 51.5 points, a two-year high
The Shanghai composite initially rallied almost one per cent on the news, but it reversed to trade 0.1 per cent down at the close of the ASX.
In Tokyo the Nikkei index climbed 0.8 per cent as the yen resumed its weaker trend.
The Australian dollar also reversed a 0.2Â¢ rally and was trading weaker at $US1.0510 as Ms Ridout's comments revived debate about the need for the Reserve to intervene to weaken the dollar.
"(Ms) Ridout was, recall, a very vocal critic of the damage being wreaked by a high currency before taking office and we suspect she has been a consistent voice arguing the case for action that has not always been reflected in the consensus Board view," National Australia Bank global head of currency strategy Ray Attrill said.
He said the NAB business confidence index next could prove to be a key swing factor for the Reserve Board meeting in February and said the market could be underestimating the chance of a rate cut.
Spot iron ore rose $US1.80 to $US147.70 a tonne overnight, while copper also shrugged off the Chinese data, sliding 0.3 per cent to $US8077 a tonne on oversupply concerns.
US debt ceiling concerns eased after the US House of Representatives voted for a temporary suspension of the debt ceiling, with the Senate also expected.
The S&P 500 index edged up 0.1 per cent, with IBM's 4.4 per cent rally accounting for all of the outperformance of the narrower Dow Jones index which rose 0.4 per cent. After the close tech giant Apple was trading 10 per cent down in aftermarket trade after meeting earnings forecasts but missing on revenue projections and net-margins.
Sentiment floundered after the IMF downgraded its global growth forecast from 3.6 per cent to 3.5 per cent and said Europe would contract for a second year, and chief economist Olivier Blanchard said "financial markets are ahead of the real economy" and region still posed "real risks" for the world economy.
More to come