(Reuters) - Australian shares rose 1% on Monday to a two-week high as investors cheered an initial trade deal between the United States and China, and hopes for another rate cut gained steam after the government cut its outlook for growth in the economy.
The S&P/ASX 200 index <.AXJO> climbed 1%, or 64.9 points, to 6,804.6 by 0025 GMT, after hitting its highest since Dec. 3.
Late on Friday, Beijing and Washington announced a "Phase one" agreement that reduces some U.S. tariffs in exchange for what U.S. officials said would be a big jump in Chinese purchases of American farm products and other goods.
Wall Street's overall reaction to the deal was lukewarm, with major stock indexes gaining marginally.
"Some would say the pact was a little underwhelming, short of expectation in terms of the rollback of U.S. tariffs and the amount the Chinese would buy in agricultural goods," said James Tao, a market analyst at CommSec.
However, he said since U.S. stock indexes were perched at record highs, the Australian market was now making up for lost ground.
The Australian benchmark index had shed about 1.6% this month, as of last close, compared with a near 1% gain in the S&P 500 index <.SPX> during the same period.
Meanwhile, Australia cut its outlook for growth in the economy and wages as part of a A$33 billion downgrade to expected revenues over the next four years, due to weak household spending and stagnant wage growth.
CommSec's Tao said the downgrade added fuel to hopes of a rate cut in the coming months. The Reserve Bank of Australia has already cut interest rates three times since June, taking them to a record low of 0.75%.
Financial stocks <.AXFJ>, which have a heavy bearing on the index, rose nearly 1%. All the "Big Four" banks traded higher, gaining between 1% and 1.2%.
Commodity prices rallied on the trade deal news, sending resource stocks higher.
Miners <.AXMM> added 0.8%, with BHP Group Ltd <BHP.AX> and Rio Tinto Ltd <RIO.AX> firming 1% and 0.6%, respectively.
Gold stocks <.AXGD> also logged robust gains, with Newcrest Mining Ltd <NCM.AX> and Evolution Mining <EVN.AX> adding 1.5% each.
Riding on oil prices, which hit a near three-month high on Friday, the energy index <.AXEJ> tacked on 0.8%. Sector heavyweight Woodside Petroleum Ltd <WPL.AX> rose 0.9%, while smaller rival Santos <STO.AX> gained 1.7%.
New Zealand's benchmark S&P/NZX 50 index <.NZ50> fell 0.2%, or 17.98 points, to 11,223.61. Dairy giant a2 Milk Company Ltd <ATM.NZ> slipped 1.4%, weighing on the index.
(Reporting by Rashmi Ashok in Bengaluru; Editing by Subhranshu Sahu)
