* BHP Billiton (L:BLT) bounces from heavy fall
* Banks made cheaper by months of selling
SYDNEY/WELLINGTON, Dec 1 (Reuters) - Australian shares surged on Tuesday, shaking off declines in offshore equities and commodities markets, as investors took advantage of cheap stocks following months of selling.
Banks led the gains as investors took advantage of dividend yields which have been improved by lower prices after months of heavy selling amid tough new capital rules.
Miner BHP Billiton BHP.AX rallied nearly 3 percent, partly recovering the previous day's losses after Brazil said it would sue for $5.2 billion over the bursting of a dam. urn:newsml:reuters.com:*:nL3N13P4E8
The S&P/ASX 200 index .AXJO was up 1.8 percent or 91.0 points at 5,257.5 by 0126 GMT, its biggest single-day rise since Nov. 19. Even with that gain, the benchmark is down nearly 3 percent so far this year.
"There's clearly some selling that's abated," said Andrew Ward, a senior portfolio manager at Aurora Funds Management Ltd.
"It fell off towards the end of last week when a lot people imagined it would stay steady and it's taken us a bit by surprise, the extent (of the rally) today."
Other resources stocks also rose after official data showed a rise in exports in the third quarter. Rio Tinto (L:RIO) RIO.AX was up 1.5 percent while gold producer Newcrest Mining rose 1.6 percent. urn:newsml:reuters.com:*:nL3N13P679
Energy stocks defied a decline in the oil price and rose, albeit less than the broader market in some cases, with Woodside Petroleum WPL.AX up 2 percent, Oil Search OSH.AX up 0.5 percent and Santos STO.AX 0.6 percent better.
All the so-called "Big Four" banks were higher, with Australia and New Zealand Banking Group ANZ.AX up 2.5 percent, Commonwealth Bank of Australia CBA.AX up 2 percent, National Australia Bank 1.9 percent firmer and Westpac Banking Corp 1.3 percent higher.
The biggest gainers were law firm Slater and Gordon SGH.AX and electronics retailer Dick Smith Holdings DSH.AX , up 23 percent and 18 percent respectively, as the stocks bounced from ferocious selling in previous sessions on profit fears.
New Zealand's benchmark NZX 50 index .NZ50 rose 0.6 percent or 33.6 points to 6,133.8.
Air New Zealand was among the biggest gainers, rising 1.8 percent admidst positive investor sentiment as the airline began flying its new service to Argentina.
Meridian Energy MEL.NZ rose 1.5 percent and Stride Property STR.NZ was up 1.4 percent.
Infratil IFT.NZ rose 0.7 percent after the infrastructure company sold billboard advertising firm Isite. urn:newsml:reuters.com:*:nWNBS01QAY
Accounting software company Xero XRO.NZ rose 0.5 percent, recovering from five consecutive sessions of losses after directors sold shares in the company.
Telecommunications company Spark NZ SPK.NZ fell 1.7 percent as investors took profit after two days of gains.
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