LONDON (AP) -- Japanese shares outperformed other markets on Monday amid hopes that the new government will enact fresh stimulus measures to boost the world's third-largest economy.
Signs that U.S. politicians are inching toward a budget deal helped Wall Street open stronger than earlier predicted and shored up European markets after a bad morning.
The standout index was Japan's Nikkei 225, which closed up 0.9 percent at 9,828.88, its highest level since April, after the country's Liberal Democratic Party swept back into power at weekend elections with a landslide victory.
Party chief Shinzo Abe, who is in line to become prime minister, favors increased spending on public works and setting a 3 percent economic growth target. He's also expected to lobby for stronger action by the central bank to get Japan out of its deflationary trap.
"Japanese equities rallied today on the back of a resounding victory by Shinzo Abe's LDP, giving them a mandate to boost economic growth through more aggressive fiscal and monetary easing," said Rebecca O'Keeffe, head of investment at Interactive Investor.
Expectations of further stimulus in Japan, despite the country's sky-high debt levels and doubts over the effectiveness of looser economic policy, further weighed on the yen. The dollar was 0.4 percent higher at $83.72 yen.
The yen's recent weakness is a potential boon to the country's powerhouse exporters. Automaker Nissan Motor Co. rose 1.8 percent, Sony Corp. climbed 1.4 percent and Panasonic Corp jumped 2.3 percent.
Elsewhere, markets remained largely beholden to developments over the U.S. budget. The concern is whether the White House and Congress will agree a budget deal in time to avoid the "fiscal cliff" of automatic tax increases and spending cuts at the start of next year.
In Europe, Britain's FTSE 100 index closed down 0.2 percent at 5,912.15 while Germany's DAX edged 0.1 percent higher to 7,604.94. The CAC-40 in France slipped 0.1 percent to 3,638.10.
In the U.S., the Dow Jones industrial average was up 0.7 percent at 13,223.70 while the broader S&P 500 index rose 1 percent to 1,427.22.
Though the budget measures associated with the "fiscal cliff" would not all be introduced at once and the Republicans have indicated a willingness to increase taxes on households earning over $1 million, investors won't breathe easily until a deal is signed, sealed and delivered.
"Investors have so far remained hopeful that an agreement can be reached in a sufficiently timely manner," said Nick Bennenbroek, an analyst at Wells Fargo Bank. "However, with a year-end deadline for a deal now looming closer, those budget developments should become increasingly important through the end of December."
In recent weeks, the dollar had suffered, at least against the euro, due to the U.S. budget fears. On Monday, the currencies were steady, with the euro up 0.1 percent at $1.3171.
Elsewhere in Asia, China's shares fared fairly well as its new leaders promised more spending if needed to underpin a wobbly economic recovery. Those hopes helped the Shanghai Composite to rise 0.4 percent to 2,160.34 and the smaller Shenzhen Composite index to end 0.4 percent higher to 819.58.
On Sunday, China's new Communist Party leaders under party General Secretary Xi Jinping pledged a "proactive fiscal policy" and "prudent monetary policy" in a statement carried by the official Xinhua News Agency. They were references to the willingness to boost spending if needed and keep credit easy so long as inflation stays low.
Elsewhere in Asia, South Korea's Kospi lost 0.6 percent to 1,983.07 and Hong Kong's Hang Seng was down 0.4 percent at 22,513.61.
In commodity markets, the price of benchmark crude oil in New York was up 79 cents at $87.52 a barrel.