LONDON -- Hopes that President Barack Obama and U.S. lawmakers will be able to avoid a budget crisis before a January deadline helped world stock markets recover from earlier losses on Wednesday.
The two sides have until Jan. 1 to reach a deal to trim the country's unwieldy deficit. Otherwise, a series of automatic tax increases and sharp spending cuts will take effect that could drag the world's biggest economy into recession.
Obama said Wednesday that he believes the members of the Democratic and Republican parties can agree on a "framework" on a debt-cutting deal before Christmas.
That helped European stock indexes, which were trading lower all day, close higher. Britain's FTSE 100 gained 0.1 percent to end at 5,803.28 while Germany's DAX rose 0.2 percent to 7,343.41. France's CAC-40 rose 0.4 percent to 3,515.19.
On Wall Street, the Dow was up 0.6 percent at 12,952.62 and the S&P 500 rose 0.4 percent to 1,404.32.
Stock market losses began earlier in Asia. Japan's Nikkei 225 index fell 1.2 percent to close at 9,308.35, a day after closing at a seven-month high.
Obama plans to make a public case this week for his strategy as he pressures opposing lawmakers to allow tax increases on the wealthy while extending tax cuts for families earning $250,000 or less.
On Wall Street, reports released Tuesday showing increases in U.S. consumer confidence and orders for machinery and equipment failed to boost stocks significantly.
"If one could just take politicians and the fiscal cliff out of the picture, an optimistic outlook would be far easier to cobble together. There's been depressingly little news of cliff breakthroughs, or even developments, of late," said analysts at DBS Bank Ltd. in Singapore in an email commentary.
In Europe, sentiment improved this week after Greece's bailout creditors agreed to pay its next installment of loans and outlined a series of measures to lower its debt load over the coming decade. Concerns remain, however, over the country's economy, which is expected to enter a sixth year of recession in 2013 and the government's ability to implement its reforms.
In Spain, another hotspot in Europe's crisis, EU authorities on Wednesday approved the payout of €37 billion in rescue loans to four banks, but only if they cut their assets by 60 percent.
Elsewhere, South Korea's Kospi shed 0.7 percent to 1,912.78 and Australia's S&P/ASX 200 lost 0.2 percent to 4,447.30. Hong Kong's Hang Seng fell 0.6 percent to 21,708.98.
Mainland China's Shanghai Composite Index fell 0.9 percent to 1,973.52, a four-year low. The smaller Shenzhen Composite Index tumbled 1.9 percent to 750.97.
Benchmark oil for January delivery was down $1.03 to $86.15 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell 56 cents to finish at $87.18 per barrel on the Nymex on Tuesday.
In currencies, the euro fell to $1.2932 from $1.2939 on Tuesday in New York. The dollar fell to 81.91 yen from 82.17 yen.
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