LONDON -- Optimism over the progress of crucial U.S. budget talks combined with hopes that Greece will finally get its next batch of bailout cash to shore up markets Monday in spite of concerns over the fighting in the Middle East.
The advance followed a rebound late Friday amid signs that President Barack Obama and leaders of Congress were making headway in their efforts to agree a budget deal by the end of the year. Without a settlement, the U.S. faces the "fiscal cliff" of tax increases and spending cuts -- a scenario that some analysts say could knock around 5 percentage points off the U.S. economy, seriously derailing the global recovery.
"Hope that U.S. politicians can avoid the fiscal cliff has been gaining traction over the weekend after lawmakers expressed confidence that they can reach a deal," said Jane Foley, an analyst at Rabobank International. "Clearly if an agreement is reached the U.S. should be able to avoid be plunged back into recession early next year."
As a result, a sense of relief pervaded markets at the start of a week that will likely be dominated by developments in Europe and the Middle East. The mass exodus for the U.S. Thanksgiving holiday on Thursday will build through the week and most traders won't be returning to their desks until next week.
In Europe, the FTSE 100 index of leading British shares was up 1 percent at 5,660 while Germany's DAX rose 1.3 percent to 7,041. The CAC-40 in France was 1.3 percent higher too 15 3,386.
Wall Street was poised for gains later, with both Dow futures and the broader S&P 500 futures 0.5 percent higher.
There's little on the economic calendar later in the U.S. so attention will likely remain on any noises that may emerge from the Obama administration and Congress over the progress of the budget talks.
Investors will also be monitoring latest developments in Greece's bailout saga, amid hopes that the country's euro partners and the International Monetary Fund will finally sign off on the release of at least (euro) 31.5 billion of cash the country needs to avoid going bankrupt.
Ministers from the eurogroup meet Tuesday, ahead of a summit of their leaders later in the week that will discuss the European Union's budget for the next few years.
Despite uncertainty over whether a budget deal in Europe will be agreed, the euro has prospered in the more optimistic market mood. It was trading 0.2 percent higher at $1.2770.
Earlier, Hong Kong's Hang Seng added 0.5 percent to 21,262.06 and South Korea's Kospi rose 0.9 percent to 1,878.10. Mainland China's Shanghai Composite Index inched up 0.1 percent to 2,016.98. The smaller Shenzhen Composite Index rose marginally to 800.84.
The yen's recent weakness helped boost Japan's Nikkei 225 and its heavy orientation toward exporting companies -- a weak yen reduces the cost of Japanese products overseas, and that helps companies whose survival depends on sales beyond their home turf.
The index in Tokyo jumped 1.4 percent to close at 9,153.20, its highest close since Sept. 19, while the dollar continued to trade above 81 yen.
Investors across all financial markets were also monitoring developments in the Middle East as the conflict between Israel and Hamas showed few signs of abating.
Concerns over crude supplies supported oil prices, with the benchmark New York rate up 88 cents at $87.80 a barrel.