NEW YORK Global shares advanced on Monday, supported by signs of tentative progress on negotiations over the U.S. "fiscal cliff," while a win by Japan's conservative Liberal Democratic Party lifted the dollar to a 20-month high against the yen.
The biggest moves of the day came in the currency market following a landslide election victory for Japan's LDP on Sunday, which opened the way for a shift in economic strategy in an effort to lift the world's third-largest economy out of recession.
The triumph was seen as piling pressure on the Bank of Japan to ease further at its next policy meeting, which ends on Thursday, setting the stage for an even bigger fall in the yen. Looser monetary policy and more spending would be expected to weaken the currency, which would help make exports more profitable.
In the United States, after weeks of stalemate, talks between President Barack Obama and Republican House Speaker John Boehner at the White House on Monday raised hopes that Washington will be able to head off steep tax hikes and spending cuts that threaten the economy.
Uncertainty over if and when a federal budget deal will be done has kept investors cautious in what is already a normally quiet trading period heading into year-end.
"Trumping everything right now are the fiscal cliff talks. It seems like progress is being made. I think it's getting to the nitty gritty," said Alan Lancz, president of Alan B. Lancz & Associates Inc. in Toledo, Ohio. "The bet right now is that something will come by the end of this week."
The S&P 500 ended at its highest level in two months, with all 10 sectors higher, led by financials and other growth-oriented sectors. The S&P Financial Index .GSPF gained 2.1 percent, while the S&P consumer discretionary sector .GSPD was up 1.8 percent.
The Dow Jones industrial average .DJI ended up 100.38 points, or 0.76 percent, at 13,235.39. The Standard & Poor's 500 Index .SPX was up 16.79 points, or 1.19 percent, at 1,430.37. The Nasdaq Composite Index .IXIC was up 39.27 points, or 1.32 percent, at 3,010.60.
Shares of Bank of America (BAC.N) rose nearly 4 percent to $11 and Citigroup (C.N) gained 4.1 percent to $39.15.
The MSCI world equity index .MIWD00000PUS rose 0.6 percent to 338.38, but the FTSE Eurofirst 300 index .FTEU3 was ended 0.1 percent lower.
Major debt markets took encouragement from the Boehner proposal on taxes, with the benchmark 10-year U.S. Treasury note down 19/32, its yield at 1.7699 percent.
The yen dropped to a 20-month low against the U.S. dollar after Japan's Liberal Democratic Party won a landslide election victory that leaders promise will usher in aggressive monetary easing policies to weaken the currency.
Former Prime Minister Shinzo Abe returns to power with the LDP's victory. He campaigned on a platform to boost the moribund economy with hyper-easy monetary policy and big fiscal spending to beat deflation, a recipe for weakening the yen that gives Tokyo an export advantage in international markets.
The euro rose against the yen as well, but the common currency's gains against the U.S. dollar were undermined by European Central Bank President Mario Draghi's reiterating concerns over slow growth of Europe's economy.
In New York trade, the greenback was up 0.38 percent to 83.77 against the yen, its best level since April 2011. The euro climbed 0.33 percent to 110.24 yen but fell from its 8-1/2-month high of $1.3191 to trade at $1.3158, down 0.04 percent against the U.S. currency.
Brent crude prices dipped on Monday while U.S. oil futures rose as news of a key U.S. pipeline expansion will be completed next month.
Brent crude futures fell 54 cents to settle at $107.64 a barrel while front-month U.S. January crude rose 47 cents to settle at $87.20 a barrel.
(Reporting by Angela Moon; Additional reporting by Caroline Valetkevitch and Daniel Bases; Editing by Dan Grebler and James Dalgleish)