The benchmark S&P/ASX200 index closed 32.7 points, or 0.44 per cent higher, at 7420.3 points on Friday.
Gains in four of the five sessions ahead of the Christmas break left the index 1.6 per cent higher for the week.
The All Ordinaries index rose 37.2 points, or 0.48 per cent, to 7744.7 points.
"A lot of it has to do with the fact that Omicron is looking like a smaller threat to growth," IG markets analyst Kyle Rodda said.
"You've also got really thin trading conditions so the moves are a bit exaggerated to the upside. But there's certainly a degree of bullishness going into the Christmas period."
Investor sentiment globally has improved after reports that Omicron is less likely to lead to hospitalisation compared to previous coronavirus variants, and indications that both Merck's and Pfizer's COVID-19 anti-viral pills are effective against the variant.
It prompted US markets to rise overnight, sending the S&P 500 to a record high, and also helped rally oil prices.
Local investors also shrugged off the rapid spread in virus infections, as NSW topped 5000 cases for a second straight day and Victoria added 2095 new cases.
Every sectoral index bar one ended higher, but gains were led by the financials and materials sectors.
Financial stocks were led by a 6.4 per cent rebound in AMP shares after the wealth management giant agreed to sell AMP Capital's infrastructure debt division to US-based Ares Management for $428 million.
Each of the Big Four banks also ended firmly in the green.
The big iron ore miners closed higher but took a backseat as copper and lithium miners rose 3-4 per cent each to remain at the forefront. Lithium explorer Pilbara Minerals climbed 5.3 per cent to a new record of $2.96.
Energy shares benefited from an overnight rally in oil prices, with Santos up 2.2 per cent at $6.40, while Woodside also ended higher.
Technology shares staged a turnaround after Thursday's decline, in line with the gains for the sector on Wall Street. Afterpay shares rose 1.5 per cent to $86.65, while Wisetech Global recovered 1.4 per cent to $59.50.
Consumer staples was the only sector to close in the red, as both supermarket giants Woolworths and Coles drifted lower and Blackmores dropped 1.8 per cent to $90.
Among other standout performers, telecoms giant Telstra hit a fresh 52-week high of $4.15 at the close, rising 0.7 per cent for the day. Sonic Healthcare also hit a fresh year high of $46.63 before easing somewhat to close at $46.25.
Meanwhile, the easing Omicron concerns boosted risk appetite, helping the Australian dollar lift. The local currency was buying 72.28 US cents at 1500 AEDT, higher from 72.17 US cents at Thursday's close.
ON THE ASX
* The benchmark S&P/ASX200 index closed 32.7 points, or 0.44 per cent higher, at 7420.3 points on Friday.
* The All Ordinaries index rose 37.2 points, or 0.48 per cent, to 7744.7 points.
* At 1500 AEDT, the SPI200 futures index was up 39 points, or 0.53 per cent, at 7331 points.
CURRENCY SNAPSHOT
One Australian dollar buys:
* 72.28 US cents, from 72.17 cents on Thursday
* 82.64 Japanese yen, from 82.43 yen
* 63.81 Euro cents, from 63.64 cents
* 53.91 British pence, from 54.06 pence
* 106.11 NZ cents, from 105.90 cents.
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