LONDON (AFP) - European stock markets soared on Thursday as traders reacted strongly to signs of a deal in Washington to avoid a dilapidating US debt default.
Stock prices surged and the dollar stabilised against the euro late in the session on news that Republican leaders were to offer President Barack Obama a temporary deal to raise the US government's debt ceiling of $16.7 trillion and head off the immediate risk of default.
Dealers cheered the news with London's benchmark FTSE 100 index up 1.46 percent to 6,430.49 points.
Frankfurt's DAX 30 rose 1.91 percent to 8,679.09 points, while the CAC 40 in Paris jumped 2.21 percent to 4,218.11 points.
Wall Street also skyrocketed, with the Dow Jones Industrial average up 1.56 percent in midday trading, and the tech-heavy Nasdaq gaining 1.88 percent.
"Having hit multi month lows earlier this week we?ve seen a much perkier session today in Europe on optimism that a meeting between President Obama and senior Republicans later this evening will yield some progress as we head towards the eleventh day of the US government shutdown and the debt ceiling deadline looms ever closer," said Michael Hewson, Senior Market Analyst at CMC Markets UK.
Obama meets Republican leaders just one week before political stalemate could take an extreme turn and degenerate into a historic debt default.
Treasury Secretary Jack Lew meanwhile warned US lawmakers Thursday that a US debt default would be "deeply damaging" to financial markets.
But Congressman Robert Pittenger told reporters after a meeting of Republican representatives on Capitol Hill that a "short-term" deal would be put on the table.
The Organisation for Economic Cooperation and Development (OECD) on Wednesday warned that a default could throw most of the world's major economies "back into recession next year" and badly damage emerging nations
In foreign exchange deals on Thursday, the European single currency edged up to $1.3535 from $1.3521 in New York the previous day. The dollar rose to 98.13 yen from 97.33 yen.
Sterling fell against the euro and dollar as the Bank of England announced that its key interest rate would remain at a record low.
"The good run for the pound has hit a stumbling block following disappointing data from the UK's manufacturing and Industrial sectors," said Phil McHugh, a dealer at Currencies Direct.
Data released on Wednesday showed British industrial output sank unexpectedly in August, diving 1.1 percent from July, in the biggest monthly fall since September 2012.
On the London Bullion Market, the price of gold fell to $1,298.50 an ounce from $1,304 on Wednesday.
In company news, German bank Commerzbank was the biggest mover in Frankfurt on renewed takeover rumours, which were denied. The bank surged 5.92 percent to 9.35 euros.In France, loss-making tech-equipment company Alcatel Lucent jumped 8.02 percent to 2.79 euros. Shares in the company tumbled on Wednesday after the French government asked it to revisit a massive restructuring programme.