LONDON (AP) -- Two days ahead of a possible stimulus reduction from the U.S. Federal Reserve, stocks in Europe and the U.S. surged Monday, suggesting investors are relaxed about the outcome.
The Fed concludes its two-day policy meeting on Wednesday and there is a growing expectation in the markets that it will decide to start reducing its $85 billion worth of monthly financial asset purchases.
Though most analysts think the Fed will likely hold off for at least another month, expectations have ratcheted higher in the past couple of weeks following a run of strong economic data. Monday figures showing a forecast-busting 1.1 percent increase in industrial production in November provided further evidence that the U.S. economy is gaining traction.
"Another piece of encouraging U.S. economic news adding to December Fed tapering expectations," said Jennifer Lee, an analyst at BMO Capital Markets.
Since the U.S. stimulus has helped buoy stocks around the world over the past few years, its potential reduction has jolted markets periodically in recent months.
However, any so-called tapering is expected to be accompanied by a renewed commitment by the Fed to keep interest rates low. That, analysts say, helps explain why stock markets are still trading at relative highs and why bond markets aren't getting too excited.
"The actual market reaction to tapering this week could be fairly muted as it appears to have been priced in already," said Kathleen Brooks, research analyst at Forex.com.
In Europe, the FTSE 100 index of leading British shares closed up 1.3 percent at 6,522.20 while Germany's DAX rose 1.7 percent to 9,163.56. The CAC-40 in France ended 1.5 percent higher at 4,119.88.
In the U.S., the Dow Jones industrial average was up 0.9 percent at 15,902 while the broader S&P 500 index rose 0.7 percent at 1,788.
Two major deals caught investors' attention on Wall Street. Chipmaker Avago Technologies is buying LSI Corp. for $6.6 billion while AIG is selling its aircraft leasing business for about $5.4 billion to Dutch leasing company AerCap.
Despite the speculation that the Fed will begin tapering, the dollar faltered, a further sign perhaps that the markets have priced in a reduction in the stimulus. The euro was up 0.3 percent at $1.3757 while the dollar fell 0.3 percent at 102.91 yen.
The rise in the yen helps explain why the Nikkei 225 index slid 1.6 percent to 15,152.91 despite a report from Japan's central bank showing improved business sentiment. The quarterly "tankan" survey showed that a key index for business confidence among large manufacturers improved to 16 from 12 in the last survey, marking the fourth straight quarterly rise.
Elsewhere in Asia, Seoul's Kospi inched down 0.1 percent to close at 1,961.15 while Hong Kong's Hang Seng dipped 0.6 percent to 23,114.66.