LONDON (AP) -- Financial markets were decidedly perkier Thursday as President Barack Obama was set to meet with top Republican leaders in an effort to end the budget impasse that has gripped Washington over the past few weeks.
With the partial shutdown of the U.S. government entering a tenth day and a deadline to raise the debt ceiling just a week away, investors across financial markets are focused on developments in the U.S. capital. The biggest worry has been the debt ceiling: If it's not raised, the U.S. could default on its debts.
One option reportedly being considered to break the standoff has been a short-term increase in the debt ceiling.
Ahead of the meeting with Obama, House of Representatives Speaker John Boehner said he would give the president a proposal extending the government's ability to borrow money through Nov. 22 — but only if he agrees to negotiate over ending a partial government shutdown and a longer-term increase in the debt ceiling.
Treasury Secretary Jacob Lew, meanwhile, told a Congressional committee that the president was ready to negotiate over the future direction of fiscal policy but not over whether the U.S. pays its bills.
"The noises out of Washington have begun to sound a little more encouraging, as rumors abound that the two parties may be entering negotiations to raise the debt ceiling enough to buy them a four- to six-week window to find a longer term solution," said Alastair McCaig, market analyst at IG.
In Europe, the FTSE 100 index of leading British shares closed up 1.5 percent at 6,430.49 while Germany's DAX rose 2 percent to 8,685.77. The CAC-40 in France ended 2.2 percent higher at 4,218.11.
In the U.S., the Dow Jones industrial average was up 1.6 percent at 15,032 while the broader S&P 500 index rose 1.6 percent to 1,684.
The dollar has also settled somewhat in recent days following losses that sent it near a year-low against the euro. Europe's single currency was up 0.1 percent at $1.3533 following a big rally by the dollar on Wednesday. Against the Japanese yen, the dollar was up 0.6 percent to 98.13 yen.
Not even a surprisingly big increase in jobless claims could derail the positive sentiment. The Labor Department said claims soared by 66,000 to 374,000 last week, but analysts noted flaws in the data, especially with regard to California.
Stocks have also been shored up over the past day or so by the nomination of Janet Yellen to succeed Ben Bernanke as chairman of the U.S. Federal Reserve as well as the minutes to the last Fed policy meeting.
The minutes indicated that the Fed's monetary stimulus will not be reduced until there is clearer evidence of a further improvement in the U.S. economic outlook. The increased likelihood that so-called "tapering" of the stimulus will be delayed until next year has provided stocks a further boost. One of the reasons why stocks have risen over the past few years has been the Fed's stimulus.
Earlier in Asia, Japan's Nikkei rose 1.1 percent to close at 14,194.71 but South Korea's Kospi fell nearly 0.1 percent to 2,001.41. Australia's S&P/ASX 200 shed 0.1 percent after the release of worse-than-expected unemployment data. Benchmarks in Singapore, Indonesia and Thailand rose while mainland China fell.