Stocks advanced to a new 21-month high yesterday, led by the banking and telecommunications sectors, as investors continued to chase higher-yielding investments.

The market, which began the day sluggishly following a disappointing report from Apple, did a U-turn in afternoon trading after the release of statistics showing a recovery in manufacturing activity in major export market China.

The benchmark S&P/ASX 200 finished the day up 22.4 points, or 0.5 per cent, at 4810.2. The telecom services subindex advanced 1.1 per cent and financials rose 0.7 per cent, while the mining sector finished mixed, following a raft of production reports.

"The ASX 200 had a monster rally today, pushing through the 4800" level, said Stan Shamu, market strategist at IG in Melbourne, adding that a break above the psychological barrier would been taken as a bullish signal.