Australian shares are heading for their best day in weeks, with resources stocks jumping on worries over a supply crunch and banks advancing on expectations that higher interest rates will boost their profits.

The ASX 200 was up 120 points or 1.8 per cent to 6,770 at midday, helped by Wall Street's strong gains overnight.

At the same time, the Australian dollar was flat at 68.97 US cents.

All 11 sectors were trading higher.

Risk sentiment has improved slightly this week as fears of a bigger US interest rate hike designed to contain soaring inflation eased and robust corporate earnings alleviated concerns about a sharp slowdown in economic growth.

Meanwhile, Australia said it would launch a review of the Reserve Bank of Australia's inflation target, monetary tools and board structure, amid criticism over the central bank's handling of interest rate policies.

The academic and technology sectors were leading the gains, up 3.2 per cent and 2.5 per cent respectively.

Miners led gains on the benchmark index, rising about 2.3 per cent even as iron ore prices fell in China on demand concerns due to an increase in COVID-19 cases.

Index heavyweights Rio Tinto, Fortescue Metals Group and BHP Group climbed between 1.8 per cent and 3.5 per cent.

Financials climbed about 1.6 per cent, with three of the "big four" banks gaining between 1.1 per cent and 1.4 per cent.

Energy stocks rose 1.1 per cent in opening deals after oil prices climbed overnight. However, they pared the gains as Brent prices fell slightly in early Asian trade. 

Brent crude was down, trading at $US106.80 a barrel by 12:08pm AEST.

Santos advanced 1 per cent, while Woodside Energy rose 0.4 per cent.

Technology stocks jumped 4 per cent to hit their highest level since June 1 after the Nasdaq Composite index made strong gains overnight.

Xero and Computershare advanced 5.6 per cent and 2.6 per cent respectively.

Megaport surged 19.6 per cent, Zip firmed 10.2 per cent and BrainChip rose 12.1 per cent. 

Among the worst performers were Pendal Group (-2.3pc) and Perseus Mining (-2.4pc).

World stocks higher

US stocks closed with sharp gains on Tuesday as more companies joined big banks in reporting earnings that beat forecasts, offering respite to investors worried about higher inflation and a tightening Fed denting the corporate bottom line.

The S&P 500 gained 2.8 per cent, the highest close since June 9.

The tech-heavy Nasdaq Composite added 3.1 per cent, marking the biggest one-day percentage gain since June 24.

The Dow Jones Industrial Average rose 2.4 per cent.

"Earnings have come in better than lowered expectations," said Paul Kim, CEO of Simplify Asset Management in New York.

Spiralling inflation initially led markets to price in a 100-basis-point hike in interest rates at the upcoming Fed meeting later this month, until some policymakers signalled a 75 basis point increase.

"The macro picture hasn't changed," Mr Kim said. 

"We still have falling earnings, high inflation pressures and a tightening Fed. So longer term, I don't think this type of rally has staying power."

In this earnings season, analysts expect aggregate year-on-year S&P 500 profit to grow 5.8 per cent, down from the 6.8 per cent estimate at the start of the quarter, according to Refinitiv data.

Volume on US exchanges was 10.95 billion shares, compared with the 11.76 billion average for the full session over the last 20 trading days.

Meanwhile, European shares hit more than a five-week high on Tuesday after a report that Russian gas flows to Europe via the Nord Stream 1 pipeline were seen restarting on time allayed some concerns about an energy supply crunch on the continent.

The pan-European STOXX 600 index closed 1.4 per cent up at its highest level since June 10, logging its third consecutive day of gains.

ABC/Reuters