Asian shares rose on Monday, supported by hopes U.S. politicians can overcome an imminent fiscal crunch while the yen fell to a near seven-month low against the dollar on expectations a new government chosen in next month's election could pump large amounts of stimulus cash into the economy.
A 0.2% gain in U.S. stock futures point to a firm Wall Street open, and financial spreadbetters predict London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX will open as much as 0.9% higher.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.5%, recovering from Friday's nine-week low.
Its energy sector outperformed as mounting supply concerns on escalating tension from Israeli air strikes on the Gaza Strip and Hamas rocket attacks on Israel underpinned oil prices.
The materials sector was among top gainers as London copper rallied 1% to $7,684 a tonne on a renewed growth outlook for China and hopes for a solution to the U.S. fiscal cliff.
Australian shares climbed 0.6% but Shanghai shares underperformed with a 0.5% drop, having earlier touched levels not seen since early 2009.
Japan's Nikkei average, which bucked the broad Asian downtrend on Friday and surged 2.2%, extended gains with a 1.4% climb to close at a two-month high.
Speculation that the leader of the opposition Liberal Democratic Party, which is expected to win the Dec. 16 elections, will call for more stimulus including further aggressive easing by the Bank of Japan also undermined the yen.
The BOJ begins a two-day policy meeting on Monday, and is expected to refrain from taking fresh policy steps.
The dollar hit a near seven-month high against the yen at 81.59 yen on Monday. A weaker yen helps support the economy and boosts sentiment for Japanese equities investors.
A senior trader at a foreign bank said investors had been underweight Japanese equities and the rally could have further to go as they start to put their money into Japan, advising investors to cover their positions in very heavily short-sold sectors such as electronics.
FISCAL CLIFF, GREECE EYED
Aside from Japanese politics, market players closely watched negotiations among U.S. Congressional leaders to avoid a budget crisis, and prepared for European officials' meeting on Tuesday to discuss aid for debt-stricken Greece.
Hope that U.S. politicians would find a way to steer clear of the "fiscal cliff" boosted U.S. stocks on Friday. European shares sank to a 3-1/2-month closing low, for their worst week since the end of May, on persistent concerns over U.S. fiscal policy and the euro zone debt crisis.
Top lawmakers from both major U.S. political parties on Friday hinted at the possibility of a budget compromise that involves spending cuts and additional revenue, although they were short on details.
"The good news is the tone of Friday's White House meeting but the prospect of no agreement until at least mid-December fits our view that the two sides are starting negotiations from rather distant points," Sean Callow, senior currency strategist at Westpac bank in Sydney, said in a note.
"As such, there will be plenty of negative headlines in coming weeks that weigh on Treasury yields and boost USD, which is yet again trading like a safe haven even when the bad news is generated by the US."
The dollar fell 0.2%, retreating from the two-month high of 81.455 hit on Friday against a basket of key currencies . The drop in the dollar supported gold, which added 0.5% to $1,721.60 an ounce.
The euro rose 0.1% to $1.2760, with traders waiting to know whether euro zone finance ministers and International Monetary Fund Managing Director Christine Lagarde would agree a way to make Greece's debt manageable.
"As the EU prepares a bundled aid package to avert a Greek default, headlines coming out of the meeting may fuel a relief rally in the euro, but we will maintain our bearish forecast for the single currency as the region faces a deepening recession," said David Song, currency analyst at DailyFX.
U.S. crude futures jumped 1% to 87.81 a barrel and Brent rose 0.7% to $109.70.
