European equities climbed on Wednesday in a "Santa" rally that was driven by hopes of a breakthrough deal to avoid the US "fiscal cliff," and on news of rebounding German business confidence, dealers said.
In afternoon deals, London's benchmark FTSE 100 index of leading shares rose 0.65 percent to 5,974.77 points, Frankfurt's DAX 30 index won 0.33 percent to 7,679.06 points and the Paris CAC 40 climbed 0.49 percent to 3,666.53 points.
Milan's FTSE Mib index gained 1.19 percent to 16,347.08 points and Madrid's IBEX 35 rallied 1.76 percent to 8,312.3 points.
Shares in Athens, a low-volume market, shot up by 4.07 percent after ratings agency Standard and Poor's lifted the country out of selective default on Monday.
The euro rose to $1.3295 following the German data and after Greece's debt rating was upgraded from $1.3225 late in New York on Tuesday.
Gold prices rose to $1,674.50 an ounce on the London Bullion Market, from $1,672.75 Tuesday.
"Santa has returned to the markets, bringing some much needed cheer before the Christmas break," said Ishaq Siddiqi, analyst at ETX Capital trading group.
"Traders are feeling risky as such, picking up euros, stocks oil and even gold but dumping core government bonds.
"US budget talks are progressing in the right direction, albeit still not as fast as markets would like. Republicans have a back-up plan in case talks collapse with Democrats and the US economy drives off the cliff," he added.
The main focus remains on the United States, where lawmakers are holding talks to avert the huge tax hikes and deep spending cuts slated to come into effect in two weeks.
Most economists expect the package to tip the US economy into recession if a new deal -- with less swingeing measures -- is not agreed in time.
However, there is growing confidence that progress is being made in the negotiations, with top Republican lawmaker John Boehner saying he is willing to see taxes rise for people on more than $1.0 million -- rather than his previous position of no rises at all.
President Barack Obama has also said he is willing to see rises for people on more than $400,000, rather than the $250,000 he previously wanted.
"Investors are still optimistic that a deal will be done following positive talks earlier in the week," said analyst Craig Erlam at trading group Alpari.
"We are likely to see risk assets continue to rally now for the rest of the year, unless talks collapse, which at this stage is unlikely."
Investor sentiment was boosted also by data showing German business confidence continued to climb in December, amid growing faith that the eurozone will manage to beat its crippling debt crisis.
The Ifo institute's closely watched business climate index for Europe's top economy rose to 102.4 points in December from 101.4 points a month earlier. That topped market expectations for a score of 102.0 points.
Asian markets were also lifted on Wednesday as US politicians look to be closing in on a deal.
Tokyo shares surged 2.39 percent, a third straight rally, to break 10,000 points for the first time in eight months ahead of an expected Bank of Japan announcement on monetary policy.
Elsewhere, Hong Kong rose 0.57 percent and Sydney climbed 0.49 percent, while Shanghai closed flat.
The six-notch upgrade of Greece by S&P from selective default to B-/B "reflects our view of the strong determination of European Economic and Monetary Union (eurozone) member states to preserve Greek membership in the eurozone", the agency said.
The move came after Greece completed a debt buyback programme and eurozone finance ministers approved the latest batch of bailout cash.