NEW YORK (Reuters) - Global stocks advanced to their highest levels since September on Tuesday on signs of compromise in U.S. talks to stop automatic tax hikes and spending cuts that could hurt the economy next year.
With confidence rising that lawmakers would avert the "fiscal cliff," investors shifted funds to stocks and the euro and pulled away from assets traditionally viewed as safe harbors like bonds, gold and the U.S. dollar. The euro hit a 7-1/2 month high against the greenback.
Wall Street rallied, putting the S&P 500 on track for its best two-day run in a month, as investors gained confidence that federal budget talks were progressing, even as significant differences separated Democrats and Republicans in Washington.
The gains followed a rally on Monday that lifted the S&P 500 to its highest point in nearly two months. Investors remain confident Washington will come to an agreement.
President Barack Obama's most recent offer makes concessions to the Republicans on taxes and entitlement spending, but House Speaker John Boehner said the offer is "not there yet," though he remains hopeful of an agreement. Senate Democrats have expressed concern about entitlement cuts, particularly to Social Security.
"As you get more and more clarity and dialogue that there will be a compromise to avoid a fiscal cliff, I think the markets are going to rally," said Weston Boone, vice president of listed trading at Stifel Nicolaus Capital Markets.
"What's holding this market back - the S&P 500 - from continuing to reach higher highs is the macro headwinds, and a lot of that emanates from (Washington) D.C."
For a second day, banks led the rally on Wall Street. Goldman Sachs Group was up 3.1 percent and Morgan Stanley gained 2.9 percent after Jefferies Group reported a higher-than-expected adjusted quarterly profit. Jefferies was up 3 percent to $18.79. The S&P 500 Financial Index climbed 1 percent.
The Dow Jones industrial average was up 103.36 points, or 0.78 percent, at 13,338.75 in afternoon trading. The Standard & Poor's 500 Index was up 13.46 points, or 0.94 percent, at 1,443.82. The Nasdaq Composite Index was up 37.41 points, or 1.24 percent, at 3,048.02.
European shares ended higher, with a key index closing just a few points below its 2012 high.
The euro rose to its highest in more than seven months against the dollar and hovered near a nine-month peak versus the yen as market players sold the safe-haven dollar.
Oil prices rose. Front-month Brent crude oil prices gained $1.03 to $108.67 a barrel, briefly topping the 14-day moving average of $108.87 a barrel. U.S. crude oil futures gained 76 cents to trade at $87.97 a barrel, breaking above the 50-day moving average of $87.64 a barrel after testing that level during Monday's trade.
The benchmark 10-year U.S. Treasury note was down 12/32, with the yield at 1.8153 percent. U.S. 30-year Treasuries bond prices fell a full point. The bonds were last down 27/32 in price to yield 2.99 percent, after rising as high as 3.001 percent. The debt closed on Monday at yields of 2.95 percent.