European stocks rebound on US fiscal prospects

European stock markets rebounded on Monday, mirroring sentiment across Asian indices, on rising prospects that the United States can avoid falling back into recession, while traders looked ahead to an EU summit.

Also in the coming days, a meeting of eurozone finance ministers could unlock a critical instalment of EU-IMF bailout loans for Greece.

In afternoon deals, London's benchmark FTSE 100 index of top companies jumped 1.50 percent to 5,689.51 points, Frankfurt's DAX 30 index grew 1.82 percent to 7,076.98 points and in Paris the CAC 40 advanced 2.08 percent to 3,411.11 points.

The euro climbed to $1.2769 from $1.2741 late in New York on Friday.

On the London Bullion Market, gold prices rose to $1,723.25 an ounce from $1,713.50 Friday.

"While the US 'fiscal cliff' motive has provided an explanation as to why the markets were falling for quite a while now, the progress on that front... is definitely improving the risk appetite" in Monday trading, said Gekko Global Markets trader Anita Paluch.

US stocks also scored solid gains Monday. After five minutes of trade, the Dow Jones Industrial Average was up 0.86 percent, the S&P 500-stock index advanced 1.20 percent, while the tech-rich Nasdaq Composite leaped 1.19 percent.

"Markets are looking to extend Friday's gains on hopes that progress will be made surrounding the fiscal cliff," said Wells Fargo Advisors analysts.

"Investors are encouraged after President Obama said on his trip to Southeast Asia that he believes a budget deal will be reached."

US President Barack Obama -- currently on a Southeast Asia visit -- has met congressional leaders from both parties to open talks on pulling back from the fiscal cliff of tax hikes and spending cuts, due to take effect on January 1.

Fears around the world over the looming deadline have depressed markets for most of the month.

The two sides stressed willingness to find common ground and avoid a face-off like that over the country's debt ceiling, which almost brought the country to a standstill in August.

Growing optimism that the US can resolve the problem gave a boost to banking share prices on Monday. British lender Barclays won 3.65 percent to 242.75 pence, French bank Societe Generale rose 2.93 percent to 25.15 euros and Deutsche Bank advanced 2.89 percent to 33.08 euros.

But despite Monday's stock market gains, equities "have failed to sustain the rally seen since the lows in the market from the middle of the year," said Neil MacKinnon, analyst at VTB Capital Research.

"Investors have been confronted by a long checklist of uncertainties ranging from the fiscal cliff which threatens to push the US economy into recession to higher dividend and capital gains taxes in the US which have encouraged investors to sell early."

MacKinnon added: "Outside the US, investors have been worried about the situation in Greece and Spain, and the fact that the eurozone is in recession dragging down the core economies of Germany and France."

The European Union looks set for fresh trouble this week as an extraordinary summit called to agree a long-term trillion-euro budget heads for an ugly showdown, possibly even failure.

Already weakened by three years of economic crisis, the 27-nation bloc of half a billion people faces new trauma at the two-day summit starting Thursday after weeks of talks that have exposed stark divisions between pro- and anti-austerity nations, as well as between the haves and have-nots.

European leaders begin talks on the EU's next seven-year budget on Thursday, with Britain's prime minister David Cameron in the role of leading spoiler -- though most governments are putting national interest well above shared concerns.

Ahead of the summit, eurozone finance ministers tackle Greece's financial strains.

Greek Finance Minister Yannis Stournaras on Monday said his country was "totally ready" for Tuesday's ministerial meeting.

The immediate issue is approval of about 31 billion euros ($40 billion) in long-delayed aid funds after Greece adopted a tough new austerity package and 2013 budget, as required by its creditors -- the EU, IMF and the European Central Bank.

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