Asian shares and the euro rose to multi-month highs on Wednesday as expectations of more aggressive monetary stimulus from the Bank of Japan and signs of progress in resolving the U.S. "fiscal cliff" budget crisis lifted demand for riskier assets.
European shares were also expected to post gains. However, index futures pointed to a flat opening on Wall Street after the S&P 500 had its best two-day run in a month on growing confidence a deal can be reached in Washington to avoid a raft of painful spending cuts and tax rises.
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"What is important, and what is driving the market higher, is that the two parties are now in constructive discussions over specific tax levels and spending programs, and working towards a common middle ground," said Cameron Peacock, a strategist at IG Markets in Melbourne.
Industrial commodities such as oil and copper consolidated earlier gains, while gold recovered some lost ground but remained not far above its lowest in nearly four months as progress in the U.S. budget talks limited its safe-haven appeal.
Financial spreadbetters called London's FTSE 100 , Frankfurt's DAX and France's CAC-40 indexes to rise 0.2 percent to 0.3 percent.
Tokyo's Nikkei share average <.N225> closed up 2.4 percent, topping 10,000 points for the first time since April, as the prospect of more monetary stimulus and a cheaper yen boosted financials stocks and shares of exporters.
MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> gained 0.4 percent, touching its highest level in nearly 17 months, while Australian shares and Hong Kong's Hang Seng also reached 17-month highs.
S&P 500 index futures were flat.
MORE JAPAN EASING EXPECTED
The Bank of Japan started a two-day meeting on Wednesday, under intense political pressure to expand its asset-buying program aggressively to snap the world's third-biggest economy out of its fourth recession since 2000.
Shinzo Abe, who was elected on Sunday as the country's next prime minister, called for the central bank to embark on "unlimited easing" and set an inflation target of 2 percent to beat deflation.
"The market is already in overbought territory, but investors are increasingly being alarmed that there is a risk of not having Japanese stocks in their portfolios," said Hiroichi Nishi, general manager at SMBC Nikko Securities.
The euro rose as far as $1.3256 on electronic trading platform EBS, its highest since the beginning of May, and against the yen it reached 111.73, its highest since late August 2011.
"Unless U.S. fiscal cliff talks take an unexpected turn for the worse, we believe that EUR/USD will meet our 1.3300 year-end target," analysts at BNP Paribas wrote in a note.
Oil held steady, with Brent crude rising about 10 cents to just short of $109 a barrel and U.S. crude little changed below $88.
"There has been some progress in talks and it seems commodity markets have been supported by that, as well as a combination of the recent improvement in manufacturing data in China and the United States," said commodity analyst Stefan Graber of Credit Suisse in Singapore.
Copper was also flat just above $8,020 a tonne. Copper rallied almost 8 percent from mid-November to hit a two-month high a week ago, but has since lost some ground.
Gold rose 0.3 percent to around $1,675 an ounce, after falling to $1,661.01 on Tuesday, its lowest since August.
(Additional reporting by Miranda Maxwell in Melbourne, Ian Chua in Sydney and Melanie Burton in Singapore; Editing by Richard Borsuk)