The S&P/ASX200 gained 39.1 points on Thursday, up 0.44 per cent, to 8,940.3, as the broader All Ordinaries rose 47.8 points, or 0.52 per cent, to 9,164.9.
Despite the uptick, the top-200 is still down 2.8 per cent from its recent record high and oil prices have continued higher after Iran denied rumours its officials had sought de-escalation via diplomatic backchannels and on reports of fresh Iranian air strikes on Israel.
While US promises of naval support to oil tankers in the Straight of Hormuz had done little to stem surging crude prices, markets were lending credence to talk of de-escalation, IG market analyst Tony Sycamore said.
"They've been absolutely pummelled and it certainly makes sense to put the feelers out to find where the off-ramp or de-escalation point is," he told AAP.
"And if you were one of the part of the regime which reached out to find out where the US is on this situation, you're probably not going to admit it, but it could also be the US putting it out there to calm everybody down, so we really don't know."
Local energy stocks recovered after dipping in the morning, as Santos shares gained one per cent but Woodside fell by a similar margin.
Coal producers continued to push higher and most uranium stocks rebounded, except Deep Yellow as it denied reports it was looking to raise more capital.
Gold stocks were under pressure, weighing on the basic materials sector, which dropped 0.5 per cent leading four of 11 local sectors into the red.
The dip in local gold miners came as investors weighed conflict de-escalation against continuation, which would reduce safe-haven buying on one hand and inflation, higher interest rates and less central bank gold-buying on the other.
Despite the tough day for producers, the precious metal edged higher during the session to $US5,173 ($A7,333) an ounce.
Elsewhere in mining, BHP shares dropped almost one per cent to $55.15 after going ex-dividend, although Rio Tinto managed to swing higher despite locking in its shareholder kickback.
The Commonwealth Bank did the same, rising 0.4 per cent to $172.66, lifting the heavily-weighted sector with the help of three of its big four competitors and investment giant Macquarie Group.
Health care stocks rebounded almost two per cent, as investors looked for bargains in the beaten down sector and as biotech giant CSL rallied on the back of a fresh Canadian government contract.
IT stocks also benefited from dip-buying, rallying 4.6 per cent and following a strong lead from US tech stocks overnight.
The consumer discretionary group missed out on improving confidence, ending the day just below flat as January consumer spending came in weaker than forecast.
In company news, Casino operator Star Entertainment ended the day flat after the Federal Court declared former boss Matthias Bekier failed to disclose details of suspicious conduct by junket operators in 2018 and 2019.
The Australian dollar is buying 70.41 US cents, up from 69.99 US cents on Wednesday at 5pm, with the Aussie benefiting from the tentative recovery in risk sentiment.
ON THE ASX:
* The S&P/ASX200 rose 39.1 points, or 0.44 per cent, to 8,940.3
* The broader All Ordinaries gained 47.8 points, or 0.52 per cent, to 9,164.9
CURRENCY SNAPSHOT:
One Australian dollar trades for:
* 70.41 US cents, from 69.99 US cents at 5pm AEDT on Wednesday
* 110.65 Japanese yen, from 110.28 Japanese yen
* 60.72 euro cents, from 60.36 euro cents
* 52.88 British pence, from 52.55 British pence
* 119.00 NZ cents, from 118.77 NZ cents
