LONDON – World shares rose and German government bond prices fell on Monday as investors were encouraged by an improving outlook for talks to resolve an imminent fiscal crunch in the United States.
U.S. lawmakers expressed confidence on Sunday that they could reach a deal to avert the $600 billion "fiscal cliff", which threatened to send the giant economy back into recession.
"If we don't get any deal, and the automatic provisions kick in, it will be a massive blow to economic confidence globally," said Ric Spooner, chief market analyst at CMC Markets.
"And any attempt to just kick this down the road for a later date is also going to have negative implications for the global economy, not just the United States."
However, the rally in share markets only erased part of the losses seen last week with investors still concerned about the ongoing battle to find a long-term funding solution for Greece and the rising tension in the Middle East.
The MSCI world equity index <.MIWD00000PUS> was up 0.5 percent at 318.94, recovering from a 2.7 percent loss last week, its biggest five-day fall since early June. MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> also rose 0.5 percent, recovering from Friday's nine-week low.
The FTSE Eurofirst 300 index <.FTEU3> of top European shares was up 0.7 percent in early trading with London's FTSE 100 , Paris's CAC-40 and Frankfurt's DAX as much as 1.0 percent higher.
In the bond market German Bund futures fell 14 ticks to 143.17, although they remain firmly within the 142.83 to 143.48 range that held throughout last week's trading, while U.S. debt futures also dipped.
In the currency market the dollar rose on growing expectations that a new Japanese government, after the elections to be held next month, will push the Bank of Japan into taking aggressive monetary stimulus measures to boost economic growth.
The dollar rose to as high as 81.59 yen, its highest level since April 25, before settling to trade around 81.25 yen, down 0.2 percent from late U.S. trade on Friday.
The BOJ begins a two-day policy meeting on Monday, and is not expect to take fresh policy steps ahead of the December 16 vote.
The euro rose about 0.1 percent to $1.2755 as the market waits to see how euro zone finance ministers and the International Monetary Fund will resolve their differing views on managing Greece's debt mountain.
European officials are due to meet on Tuesday and are expected to discuss a two-year funding deal for Greece deal which would postpone any longer-term solution until after a September 2013 German general election.
"As the EU prepares a bundled aid package to avert a Greek default, headlines coming out of the meeting may fuel a relief rally in the euro, but we will maintain our bearish forecast for the single currency as the region faces a deepening recession," said David Song, currency analyst at DailyFX.
In oil markets, Brent crude rose to almost $110 a barrel as escalating violence between Israel and the Palestinians fuelled concerns about supplies from the Middle East.
Brent crude for January delivery was up $1 to $109.95 and U.S. crude futures gained 80 cents to $87.72 a barrel.
(Reporting by Richard Hubbard; Editing by Giles Elgood)