LONDON (AP) -- Optimism over the progress of crucial U.S. budget talks combined with hopes that Greece will get its next bailout payment to send markets sharply higher on Monday.
The advance followed a rebound late Friday amid signs that President Barack Obama and leaders of Congress were making headway in their efforts to agree a budget deal by the end of the year. Without a settlement, the U.S. faces the "fiscal cliff" of tax increases and spending cuts — a scenario that some analysts say could knock around 5 percentage points off the U.S. economy, seriously derailing the global recovery.
"Investors were encouraged by what appeared to be a constructive first meeting between the President and congressional leaders as they strive to reach a long-term deal to address the U.S. budget deficit," said Nick Bennenbroek, an analyst at Wells Fargo Bank.
As a result, a sense of relief pervaded markets at the start of a week that will likely be dominated by developments in Europe and the Middle East. The exodus for the U.S. Thanksgiving holiday on Thursday will build through the week and most traders won't be returning to their desks until next week.
In Europe, the FTSE 100 index of leading British shares closed up 2.4 percent at 5,737 while Germany's DAX rose 2.5 percent to 7,123. The CAC-40 in France was 2.9 percent higher, at 3,439.
In the U.S., the Dow Jones industrial average was up 1.4 percent at 12,763 while the broader S&P 500 index rose 1.7 percent to 1,382.
Solid existing home sales figures, showing an unexpected 2.1 percent increase in October, provided further support to early trading on Wall Street.
"Hurricane Sandy hasn't knocked the U.S. housing recovery off track," said Sal Guatieri, senior economist at BMO Capital Markets.
Investors will also be monitoring the latest developments in Greece's bailout saga, amid hopes that the country's euro partners and the International Monetary Fund will finally sign off on the release of €31.5 billion, money the country needs to avoid bankruptcy.
Ministers from the eurogroup meet Tuesday, ahead of a summit of their leaders later in the week that will discuss the European Union's longer-term budget.
Despite uncertainty over whether a budget deal in Europe will be agreed, the euro has prospered in the more optimistic market mood. It was trading 0.5 percent higher at $1.2805.
Earlier, Hong Kong's Hang Seng added 0.5 percent to 21,262.06 and South Korea's Kospi rose 0.9 percent to 1,878.10. Mainland China's Shanghai Composite Index inched up 0.1 percent to 2,016.98. The smaller Shenzhen Composite Index rose marginally to 800.84.
The yen's recent weakness helped boost Japan's Nikkei 225 and its heavy orientation toward exporting companies — a weak yen reduces the cost of Japanese products overseas, and that helps companies whose survival depends on sales beyond their home turf.
The index in Tokyo jumped 1.4 percent to close at 9,153.20, its highest close since Sept. 19, while the dollar continued to trade above 81 yen.
Investors across all financial markets were also monitoring developments in the Middle East as the conflict between Israel and Hamas showed few signs of abating.
As well as tracking equities higher, concerns over crude supplies supported oil prices, with the benchmark New York rate up $2.32 at $89.21 a barrel.