Australia shares rise 1.9 pct on rosy RBA view

(Adds analyst comments)

By Victoria Thieberger

MELBOURNE, Nov 6 (Reuters) - Australian stocks advanced 1.9 percent on Friday, boosted by an upgrade to domestic growth forecasts by the central bank and better U.S. economic news that sparked a rally on Wall Street.

Banking and mining shares extended gains after the Reserve Bank of Australia said it expected Australia to return to close to trend growth in 2010, and held out the prospect of years of above-trend growth, fuelled by population growth and a boom in resource investment. [ID:nSYD171144]

"The RBA sees Australia reaching full capacity, perhaps by the end of next year, and they want to get back to a neutral cash rate," said St George Bank financial markets analyst Simon Mariner, adding stronger economic growth should underpin company profits.

"But we do have to be mindful of the global recovery outlook as well," he said.

Nerves about prospects for the global recovery have buffeted stocks this week, with the next key test coming with the U.S. nonfarm payrolls report out on Friday.

The benchmark S&P/ASX index <.AXJO> rose 86 points to 4,594.0. For the week, the index was down 1.1 percent.

New Zealand's benchmark NZX 50 index <.NZ50> rose 0.5 percent to 3,160.1.

"The market is running on raw emotion at the moment," said E.L. & C. Baillieu Stockbroking head analyst Ivor Ries.

"It is very choppy, sentiment driven. You've got a lot of nervous offshore investors sitting on huge profits. The first bit of bad news in a global macro sense and they sell Australia, and vice versa," he said.

Commonwealth Bank of Australia <CBA.AX>, the nation's largest mortgage lender, rose 1.7 percent to A$52.71 ahead of its first quarter trading update on Monday which is expected to show robust growth. Westpac Banking Corp <WBC.AX> rose 2.6 percent to A$26.55.

Upmarket department store retailer David Jones Ltd <DJS.AX> lifted 5.4 percent to A$5.47 after positive broker comments on its quarterly sales results. Newly listed rival Myer Holdings <MYR.AX> rose 0.3 percent to A$3.77, ending its first week as a listed firm still below its issue price of A$4.10.

Toll road operator Transurban Group <TCL.AX> jumped another 5.9 percent to A$5.55 after soaring nearly 20 percent on Thursday, when it rejected a $4.4 billion buyout approach from two Canadian pension funds, but left the door open to a better offer. [ID:nSYD544423] (Editing by Jonathan Standing)