July 13 (Reuters) - Australian shares recovered the previous day's losses on Thursday, mirroring a rise in Wall Street, after U.S. Federal Reserve chief Janet Yellen signalled only a gradual tightening of policy.
The S&P/ASX 200 index clawed back Wednesday's losses, rising 1 percent to breach the psychologically important level of 5700 by 33.8 points. The benchmark closed at a three week low in the previous session, falling nearly 1 percent to 5,673.8.
The Dow rose to a record high after Yellen's less hawkish than expected congressional testimony was seen as a green light for Wall Street to step up riskier trades.
Investors also welcomed a dovish Fed amid concerns over a dip in U.S. inflation. In recent months U.S. inflation has moved further below the Fed's 2 percent target, even as the labour market has strengthened.
"The Fed said it would alter its plan if weak inflation persisted so her comments were taken as being dovish in nature rather than hawkish," said James McGlew, executive director of corporate stock broking for Argonaut in Perth.
"There has been very much a hawkish theme throughout the course of this year and the much anticipated change in direction of interest rates upwards...is perhaps giving the Federal Reserve reason to contemplate, to hold rates where they are for a little bit longer."
Aussie financials shot up 0.6 percent though their U.S. counterparts, which tend to benefit from higher rates, were last among sectors, closing up 0.1 percent.
Commonwealth Bank of Australia and Westpac Banking Corp, the largest among the "Big 4" domestic banks by market capitalisation, were among the top performers on the benchmark, 0.8 percent and 1.5 percent higher, respectively.
Also among the top gainers was biotherapeutics firm CSL Ltd , a sector heavyweight, which pushed the healthcare index nearly 2 percent higher, its best intra-day performance since mid-June.
The gold index rose 0.3 percent, after an overnight rise in gold prices on Yellen's testimony.
New Zealand's benchmark S&P/NZX 50 index rose 0.4 percent, or 29.27 points, to 7,615.29 assisted by a surge in financial and industrial stocks.
NZX Ltd was 3.5 percent higher making it the top percentage gainer on the main index, while Auckland International Airport was the top performer by index weight, 1.8 percent higher.
Bucking the trend, the utilities and consumer stocks saw small declines with entertainment firm Skycity Entertainment Group proving the biggest drag on the benchmark 0.7 percent lower.
Additional reporting by Christina Martin in Bengaluru; Editing by Sam Holmes