LONDON World shares hit three-week peaks and commodities were also higher on Thursday as comments from a senior U.S. lawmaker raised hopes of a budget deal by year-end to avoid a fiscal crisis in the world's biggest economy.
With Asian shares higher and the FTSEurofirst 300 index of top European shares adding 0.5 percent when trading opened, the MSCI global equities index was up 0.4 percent at 330.74 points, its highest since November 7.
U.S. shares jumped overnight after House of Representatives Speaker John Boehner voiced optimism that Republicans could broker a deal with the White House to avoid a $600 billion crunch of spending cuts and tax hikes dubbed the "fiscal cliff".
"The default assumption appears to be that a deal will be reached before the year-end deadline," said Ian Williams, equity strategist at Peel Hunt.
London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX were all up between 0.3 and 0.6 percent, adding to the week's gains.
As investors returned to riskier assets, the other side of the coin was a retreat from safe-haven German government bonds, pushing benchmark Bund futures down 18 ticks to 142.77.
The main focus of the day for bond markets will be a 6 billion euro auction of Italian 5- and 10- year debt, which should bring Rome close to completing its funding needs for the year and will give an indication of whether a recent rally in higher-yielding bonds will continue.
On the data front, the European Commission's latest sentiment survey will also be closely watched and is expected to show economic conditions in the bloc stabilised in November, albeit at a three-year low.
Italy's business sentiment survey and German unemployment data are also scheduled for release later in the day.
Commodity prices were also supported by the U.S. fiscal deal hopes. Crude oil futures rose 0.4 percent to $86.86 a barrel, and Brent inched up 0.3 percent to $109.82.
In currency markets, the euro was at $1.2960, well above Wednesday's intraday low of $1.2880.
The dollar, which has seen a corrective pull-back versus the yen since hitting a 7-1/2 month high, edged up 0.1 percent to about 82.15 yen.
"I can feel a bit of long dollar/yen fatigue setting in," said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore.
(Additional reporting by David Brett; Editing by Will Waterman)