Asian shares rose and the euro hit multi-month highs on Wednesday as signs of progress in resolving the U.S. "fiscal cliff" budget crisis and expectations of more aggressive monetary stimulus from the Bank of Japan lifted riskier assets.
The gains in Asia came after Wall Street's S&P 500 rose more than 1 percent, completing 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 due to take effect from January if there is no budget agreement.
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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.
JAPAN SHARES KEEP RISING
Tokyo's Nikkei share average <.N225> rose 1.3 percent, topping 10,000 points for the first time since April, as the Bank of Japan (BOJ) was starting a two-day policy meeting.
The BOJ will ease monetary policy and consider adopting a 2 percent inflation target in January, double its current price goal, sources say, after pressure from the incoming prime minister, Shinzo Abe, for stronger efforts 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.
Australian shares rose to a 17-month high, led by miners and banks. MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> gained 0.3 percent, while S&P 500 futures were flat.
The euro rose as far as $1.3250 on electronic trading platform EBS, its highest since the beginning of May, and against the yen it fetched 111.58, having risen as far as 111.69, 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 a few cents to around $108.88 a barrel and U.S. crude barely changed just below $88.
"There is more upside potential for Brent because of a revival in the overall economic outlook," said Yusuke Seta, a commodities sales manager at Newedge Japan.
Copper was also flat just above $8,020 a metric ton (1.1023 tons). 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 Ayai Tomisawa in Tokyo and Ian Chua in Sydney; Editing by Richard Borsuk)