LONDON (AP) -- Hopes that lawmakers in Washington are inching toward a key budget deal shored up markets Tuesday, but with only two days before a deadline to raise the U.S. debt ceiling, the mood was cautious, particularly on Wall Street.
A failure to raise the debt ceiling by Oct. 17 could cause the U.S. to default on some of its debts — a development that analysts say could derail the U.S. economic recovery and cause mayhem in financial markets around the world.
Investors have been remarkably sanguine in recent days as they seem to expect that a deal will eventually be agreed between Republicans in Congress and the White House because no politician wants to be blamed for a default.
"The history of U.S. fiscal stalemates is that typically a last-minute deal is reached," said Neil MacKinnon, global macro strategist at VTB Capital.
In Europe, the FTSE 100 index of leading British shares closed 0.7 percent higher at 6,549.11 while Germany's DAX rose 0.9 percent to 8,804.44. The CAC-40 in France ended 0.8 percent higher at 4,256.02.
In the U.S., the Dow Jones industrial average was down 0.1 percent at 15,291 while the broader S&P 500 index was flat at 1,711.
The focus will remain on Washington in what is a fluid situation. In brief remarks following a meeting with his Republican caucus in the House of Representatives, Speaker John Boehner did not indicate that a bill was in the offing but insisted that the idea of a default was wrong and that he was looking to talk to members on both sides of the aisle to make progress.
Analysts said Boehner's comments may indicate that the Republicans in the House are still divided over what to do. That may strengthen the hand of the Senate, which is thought to be close to agreeing on a deal that would raise the debt ceiling temporarily until February. It would also reportedly see the U.S. government, which has been in partial shutdown for two weeks, reopen through Jan. 15.
Earlier, the mood in Asia was largely positive, too. Japan's Nikkei 225 closed up 0.3 percent at 14,441.54 while Hong Kong's Hang Seng gained 0.5 percent to 23,336.52. South Korea's Kospi closed 1 percent higher at 2,040.96. China's Shanghai Composite index bucked the trend, down 0.2 percent at 2,233.41.
The focus remained on developments in Washington in other financial markets as well. In currencies, the dollar was largely being supported by hopes over a debt deal. The euro was down 0.5 percent at $1.3483, while the dollar was flat at 98.66 yen.
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