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SYDNEY, Dec 27 AAP

December 27 2012, 5:16PM

The Australian share market has hit a new 17-month high as retailers and iron ore miner Fortescue provided momentum on a quiet day of trade.

The benchmark S&P/ASX200 index gained 12.8 points, or 0.28 per cent, to 4,648, its highest closing level since July 8, 2011.

The broader All Ordinaries index added 15.8 points, or 0.34 per cent, to 4,661.4, its highest since July 22, 2011.

On the ASX 24, the March share price index futures contract was 15 points higher at 4,628 with 9,650 contracts traded.

Fortescue Metals was a standout performer, up 18 cents, or 4.1 per cent, at $4.53 after announcing it would resume work expanding the Kings deposit at its Solomon iron ore mining hub in January after a pick up in commodity prices.

Other iron ore miners also rose as prices for the steel-making commodity continue to show signs of stabilising, IG Markets analyst Stan Shamu said.

Rio Tinto gained 61 cents to $65.45 and BHP Billiton added 13 cents to $36.99.

Retailers were the other strong performers, on reports of higher turnover at Boxing Day sales across Australia than 12 months ago.

"The retail sector is having a good day following reports of record festive sales helped by low interest rates," Mr Shamu said.

"Festive periods are generally make-or-break for many retailers, as most of their annual sales revenue is drawn from this period."

Myer added six cents to $2.13, David Jones gained seven cents to $2.41, Harvey Norman rose by three cents to $1.885 and JB Hi-Fi was three cents higher at $10.26.

Market activity was significantly lower after the Christmas break, with 849 million shares traded, well below the typical level of about 1.4 billion.

Market activity was worth $1.3 billion.

There was little economic news at home or abroad to guide investors, with the main focus still on negotiations in the United States to avoid the so-called fiscal cliff.

Members of Congress are expected to resume negotiations on Thursday in Washington, but there are no signs of any agreement on measures to reduce the impact of spending cuts and tax rises due to begin on January 1.

Local bank shares fell on Thursday, possibly in response to the impending fiscal cliff situation, as well as profit taking by investors, Mr Shamu said.

The Commonwealth Bank shed 21 cents to $62.12, Westpac lost seven cents to $26.10 and ANZ closed six cents lower at $24.91.

NAB bucked the trend, adding seven cents to $24.95.

The spot price of Sydney gold closed at $US1,655.60, down $US3.63 from Monday's local close of $US1,659.23.

By Drew Cratchley