LONDON (AP) -- Hopes that U.S. political leaders may be inching towards a budget deal that will avoid automatic spending cuts and tax increases gave markets a big boost Thursday.
Comments by President Barack Obama and Speaker of the House John Boehner that a deal to avoid a budget crisis could be reached before the year-end helped U.S. markets turn around on Wednesday and that momentum carried through into Thursday.
Getting a deal done before the year-end is necessary to avoid the so-called "fiscal cliff" of automatic spending cuts and tax increases that many economists think could push the U.S. economy, the world's largest, back into recession.
"Global equities are up on hopes that U.S. political leaders can reach a deal on the medium-term budget outlook," said Nick Bennenbroek, head of currency strategy at Wells Fargo Bank.
Figures showing the U.S. economy grew by more than previously thought in the third quarter also helped shore up sentiment.
In Europe, the FTSE 100 index of leading British shares was up 1.1 percent at 5,865 while Germany's DAX rose 1 percent to 7,413. The CAC-40 in France was 1.3 percent higher at 3,562.
In the U.S., the Dow Jones industrial average was up 0.5 percent at 13,055 while the broader S&P 500 index rose 0.6 percent to 1,419.
The open was helped by government figures showing the U.S. economy grew by an annualized rate of 2.7 percent in the third quarter, up from the previous estimate of 2 percent. Another survey showing that pending home sales in the U.S. rose to a near 6-year high in October also impressed investors.
"While not unexpected, the upward revision to third quarter GDP bolsters the case that the economy gathered some momentum last summer," said Jim Baird, Partner and Chief Investment Strategist for Plante Moran Financial Advisors.
Whether the market gains continue over the coming days could depend on how the negotiations between the White House and Congress progress. Past experience suggests that the discussions may go down to the wire.
"As actions speak louder than words, the risk of sudden sharp corrections will remain as this no doubt drags on towards the New Year," said Mike McCudden, head of derivatives at Interactive Investor.
The focus of attention will likely remain on the U.S., especially now that Greece's euro partners and the International Monetary Fund have agreed to carry on funding the near-bankrupt country. With an imminent default of Greece off the table, investor worries over Europe have diminished this week.
That has helped shore up the euro, which pushed back above $1.30, trading 0.4 percent higher at $1.3003.
Earlier, Japan's Nikkei 225 index rose 1 percent to close at 9,400.88. Hong Kong's Hang Seng jumped 1 percent to 21,922.89 and South Korea's Kospi added 1.2 percent to 1,934.85.
But mainland Chinese stocks extended their slump to a fourth day. The Shanghai Composite Index lost 0.5 percent to 1,963.49, the lowest closing since Jan. 16, 2009. The smaller Shenzhen Composite Index lost 1 percent 743.43.
Oil prices tracked equities higher, with the benchmark New York rate up $1.97 to $88.46 a barrel.