The Australian stock market rallied on Monday and recorded its biggest one-day rise in almost nine years, after the federal government took measures to stabilise the banking system by guaranteeing bank deposits.

The local bourse rose more than five per cent as investor confidence was underpinned by the decision to guarantee an estimated $700 billion that Australians have deposited in banks, credit unions and building societies.

Some $50 billion was added to the value of the market as after a horror session on Friday when the bourse lost more than eight per cent.

“There is more confidence today and that is helping hold up the market,” Man Financial broker Anthony Anderson said.

ABN Amro Morgans private client adviser Bill Bishop said the government’s deposit guarantee had boosted confidence.

“They’ve demonstrated they’re fair dinkum about this,” Bishop said.

“This is the first really solid move for the market to get its teeth into and it’s a wonderful bounce to give people a bit of confidence.”

The benchmark S&P/ASX200 rose 220 points, or 5.55 per cent, to 4180.7 today, while the broader All Ordinaries gained 202.4 points, or 5.14 per cent, to 4141.9.

It was the biggest one-day rise for both indices since October 29, 1997, when they rose 5.90 per cent.

It was also the fifth biggest one-day rally in the All Ords since 1980.

Banking and other financial stocks benefited the most from the government’s action, although all the major sectors made solid gains.

“It was the right thing to do because we saw again around the world various governments in far, far more difficult situations than we found ourself in Australia acting in this regard,” Prime minister Kevin Rudd told parliament.

But Rudd warned the global financial crisis had entered a “new and dangerous phase” that would impact on economic growth and jobs.

Brokers said concerns about the impact of slower world growth on the local economy would continue to weigh in future trading sessions, and that it was too early to say whether the positive mood today would continue.

A key private sector survey released today showed the number of jobs advertised in major newspapers and on the internet had fallen from the fifth month in a row.

Job ads fell by 1.4 per cent in September to a weekly average of 245,734 ads per week, the survey by ANZ found.

ANZ head of Australian Economics Warren Hogan said the September result confirmed that firms were still reluctant to take on new workers in current economic climate.

“Eventually this will show up as a weakening of employment growth and a rise in the unemployment rates,” Hogan said.