LONDON European shares were steady and the euro edged higher on Thursday, as U.S. lawmakers prepared to resume negotiations to avoid a fiscal crunch, while the yen hit a 21-month low on the prospect of drastic monetary easing.
Returning from the Christmas holiday break, European shares opened little changed at 1137 points, with London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX between 0.1 percent lower and 0.4 percent higher.
A 0.1 percent gain in U.S. stock futures suggested a firm Wall Street start.
In a sign that there may be a way to break the deadlock in the U.S. Congress, Republican House of Representatives Speaker John Boehner urged the Democrat-controlled Senate to act to pull back from the cliff and offered to at least consider any bill the upper chamber produced.
President Barack Obama will try to revive budget crisis talks which stalled last week when he returns to Washington on Thursday after cutting short his Christmas holiday in Hawaii.
"There is still hope for a last-minute deal, otherwise we're in for a correction in January. People have already priced in an agreement. Without it, the market can't stay at these levels," a Paris-based trader said.
Economists warn that the "fiscal cliff" of higher taxes and spending cuts worth $600 billion could push the world's largest economy into recession, dragging other countries with it.
Such concerns underpinned the dollar as the fiscal impasse continues to sap investor appetite for risky assets, raising the dollar's safe-haven appeal.
Against the yen, the dollar at 85.87 yen reached its highest since September 2010, with investors accelerating their yen sales after new Japanese Prime Minister Shinzo Abe said his government would pursue a bold monetary policy, a flexible fiscal policy and a growth strategy to encourage private investment.
The euro, which is being supported by a better outlook towards the euro zone, climbed 0.4 percent to $1.3266.
In commodity markets, London copper rose 1.7 percent to a one-week high of $7,932 a tonne after some positive data from China, the world's top copper buyer.
U.S. crude futures inched up 0.2 percent to $91.14 a barrel, helped by the Chinese data and also by hopes the new Japanese government's policies would spur demand. Brent crude steadied at $111.03.
With bond investors focusing on Washington, German government bond futures opened little changed at 144.72.
(Reporting by Marc Jones; Editing by Giles Elgood)