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An exchange traded fund indexed to Australian stocks rallied more than 4% on Monday, bouncing along with commodities as investors flocked to riskier assets on easing tensions over the Eurozone debt crisis.

Resurgent Australian stocks have been posting their biggest daily gains since 2008 on upbeat economic data. Stronger-than-expected economic news from the U.S. and a possible recapitalization of European banks have also provided a tailwind for iShares MSCI Australia Index Fund (NYSEARCA:EWA).

The ETF, which rose above its 50-day simple moving average on Monday, has more than $2.5 billion in assets under management. It rose over 6% last week as the benchmark S&P/ASX 200 closed up 3.7% on Thursday, at an 11-day high. This was the most the Australian stock market has risen since December 2008, at the height of the global credit collapse, reports David Roger for Dow Jones Newswires.

Talks between European leaders surrounding the possibility of a recapitalization of European banks gave a shot of strength to European markets. [Aussie ETF Offers Play on Commodities, Weaker Dollar]

“Once the European Financial Stability Fund is in place, the size of the fund and how it will operate will provide European banks and sovereigns with further stability and will give markets overall broader confidence,” Ben Taylor, CMC Markets sales trader said in the report. “These developments will allow an orderly Greek default to be coupled with recapitalization of European banks. I think this rally will only accelerate from short covering and from a fear of missing out over the coming weeks.” [ETF Spotlight: Australian Dollar]

In order for Australia to continue to keep a robust growth outlook, the global economy must remain healthy and recent market volatility would have to wane. The International Monetary Fund Forecast Australia’s economy to grow 1.8%, lower than the 2% forecast in August, reports Edna Curran for WSJ.com.

As the European debt crisis continues to threaten a disruption in the global economy, a softening in Asian commodities demand would be the biggest risk to the Australian economy, according to the IMF.

iShares MSCI Australia ETF

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Tisha Guerrero contributed to this article.

Disclosure: None

Source: iShares Australia ETF In Snapback Rally On Risk-On Trade