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Oct 3 (Reuters) - Australian shares rallied on Monday, driven by financials as Deutsche Bank's shares recovered from record lows on a report the bank was close to settlement with U.S. authorities over the sale of toxic mortgage bonds.
The S&P/ASX 200 index rose 51.2 points, or 0.9 percent, to 5,487.1 by 0026 GMT, its highest intra-day level in more than a month.
Deutsche Bank shares, which hit a record low on Friday, extended their recovery after the AFP news agency said the bank was near a settlement of $5.4 billion.
The bank has been in crisis since being handed the demand for up to $14 billion in September by the Department of Justice (DOJ) for misselling mortgage-backed securities before the financial crisis.
"Overall, it (developments around Deutsche Bank) resolved a systematic risk of what the market was worried about in terms of banking and that is being diluted for now," said Bill Keenan, head of equities and research at Lonsec.
Deutsche Bank's links to the world's largest lenders make it a bigger potential risk to the wider financial system than any other global bank, the International Monetary Fund (IMF) said on Thursday.
"Still see a positive run up to Christmas (for Australian markets), with the U.S. election being the next major event the markets are focused on alongside the Fed meeting in December," Keenan added.
Financial stocks accounted for more than half of the gains on the benchmark. The "Big Four" banks climbed from 0.9 percent to 1.8 percent.
Energy stocks extended gains into a third straight session after oil prices posted their second straight monthly gain on OPEC's planned output cuts. Oil major Woodside Petroleum rose as much as 1.4 percent touching a one-month high while Beach Energy Ltd soared 3.4 percent.
Miner South32 Ltd gained as much as 3.3 percent to hit a record high.
Mining giant BHP Billiton Ltd jumped as much as 1.7 percent to touch a near 11-month high after copper posted its biggest monthly rise in a year and a half as optimism over demand growth helped it catch up with other commodities.
Whitehaven Coal was among the top percentage gainers, soaring 4.5 percent.
New Zealand's benchmark S&P/NZX 50 index nudged lower by 0.1 percent, or 5.81 points, to 7,355.28.
Materials and industrials were the biggest drag on the index.
Restaurant Brands New Zealand was down 1.4 percent in what is its biggest intra-day percentage loss in three weeks, before paring the losses.
Retailer Kathmandu Holdings fell 1.5 percent while Scales Corp was among the biggest percentage losers on the benchmark, sliding 2.2 percent.
For more individual stocks activity click on (Reporting by Shashwat Pradhan; Additional reporting by Justin George Varghese in Bengaluru)