Australia’s banks rallied hard on the back of their successful defence against the South Australian bank tax with investors sending the stocks up more than 2 per cent in a $30 billion rally that saw the benchmark S&P/ASX 200 rise 1.7 per cent.

Experts said the rally was driven by cashed-up super funds looking to deploy capital after bumper inflows in the lead-up to the end of the financial year, the traditionally strong performance of banks during July, and suggestions the banks had been sold off too harshly.

The blocking of the South Australian bank levy also featured strongly in the thoughts of investors, with fund managers citing the Liberals decision to oppose the legislation in the upper house as a key reason for the bidding up of bank stocks.

All the banks were up on solid volumes with Westpac leading the charge up $1 or 3.3 per cent to $31.39. ANZ rose 64¢ or 2.2 per cent to $29.29, Commonwealth Bank rose $1.56 or 1.9 per cent to $84, NAB rose 82¢ or 2.8 per cent to $30.34 and Macquarie rose $1.45 or 1.6 per cent to $89.75.

The second-tier banks also made good gains, with Bendigo and Adelaide Bank up 32¢ or 2.9 per cent to $11.46 and Bank of Queensland up 26c or 2.3 per cent to $11.80. Earlier in the day Bendigo raised rates for mortgage holders by up to 40 basis points to meet regulatory caps on growth.

After the market closed, international ratings agency Moody’s revised the outlook for banks in the Asia Pacific region to stable from negative, although it noted Australia’s continued reliance on wholesale funding and property related risks. Moody’s downgraded the credit ratings of a dozen Australian banks last month.

ANZ chief executive Shane Elliott joined the CEOs from the big four banks in praising the decision of Liberal Party leader Stephen Marshall to block the bill. But he said in an interview with CNBC on Tuesday that the risk of new taxes had not abated.

“Absolutely there is a risk. Not just other states but there is a risk around the world. I’m sure other countries around the world are considering the levies,” Mr Elliott said before adding, “I think governments around the world are watching us with interest.”

Statewide Super chief investment officer Con Michalakis, who oversees $6 billion of retirement savings, said new restrictions on super balances effective from June 30 may have brought forward investment and helped prop up the banks.

“Many super funds can allocate their surplus funds back into the market over the next few weeks – particularly after a strong few months following the recent super changes,” he said.

Wilson Asset Management has more than $2 billion under management. Wilson portfolio manager Matthew Haupt said there was no one reason for the large rally but rather a combination of factors at play.

“With the South Australian bank tax getting blocked, the risk of other states following suit has lessened,” Mr Haupt said.

Mr Haupt also said the banks were looking oversold and Australian stocks, more broadly, were looking oversold. He said July was typically a good month for financial stocks on average.

Chester Asset Management portfolio manager Rob Tucker said that while the knifing of the South Australian bank tax had an impact, strong data had also lifted sentiment among investors.

“Stronger retail sales and stronger global data last night – such as Chinese PMI and the US manufacturing index – combined with hawkish policy from central banks suggests the reflation trade may garner a new lease on life.”

The news that the SA bank tax had been defeated also had ramifications for the Weatherill government, which was now facing a $370 million hole in its state budget.

ANZ senior rates strategist Martin Whetton said the missed revenue from the bank levy would hurt and the South Australian government would need to reconsider some expenditure.

“No budget can miss such a large percentage of its taxation measures and not feel some pressure,” Mr Whetton said.

Deutsche Bank strategist Ken Crompton said that the state based bank levy had been the major cause of a spike in South Australian government yields when compared with other semi-government bonds.

“South Australian semis and Queensland Treasury Corporation semis were trading at pretty similar spread and now South Australia is 7 or 8bps wider,” Duetsche’s Mr Crompton said.