Australian shares jumped nearly 2 per cent higher in early trade on Friday, following a strong performance on Wall Street on Thursday night.

At midday, the ASX 200 index was up 1.7 per cent, with strong rises from the big four banks and AMP, and even larger gains in resources. BHP was up 2.4 per cent, Rio Tinto was up 1.7 per cent and Oz Minerals was up 5.0 per cent.

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The sharp rise, which saw the ASX 200 break the 5300 mark for the first time since late August, was linked to strong company earnings results in the US and an increased likelihood of further financial stimulus in Europe.

Mortgage rate rises from three of the four big banks also encouraged traders to expect a Reserve Bank rate cut at its November meeting.

The bank rate increases were made in response to new capital reserve requirements imposed on the sector by the Australian Prudential Regulation Authority.