President Barack Obama and House of Representatives Speaker John Boehner spoke Wednesday for the first time in days in a telephone discussion on the so-called "fiscal cliff," the automatic spending cuts and tax increases that would kick in at the start of next year if no budget deal is agreed.
Obama said a compromise was "not that tough" and could even be done quickly, raising the possibility that broader negotiations will soon resume between the White House and congressional leaders.
"Optimism has been dealt a positive hand following reports yesterday that U.S. policy officials are moving closer to a deal, which could even be completed next week, in order to avoid the fiscal cliff," said Shavaz Dhalla, financial trader at Spreadex.
In Europe, the FTSE 100 index of leading British shares was up 0.3 percent at 5,911 while Germany's DAX rose 1.1 percent at 7,535. The CAC-40 in France was 0.5 percent higher at 3,610.
Wall Street was poised for a solid opening, with both Dow futures and the broader S&P 500 futures up 0.2 percent.
As well as monitoring U.S. budget developments, investors will be interested to hear what ECB President Mario Draghi says in his press conference after the conclusion of the governing council's monthly meeting. Even though the economy of the 17 European Union countries is in recession — confirmed in updated figures Thursday — the ECB is widely expected to keep its main interest rate unchanged at the record low 0.75 percent.
In the run-up to the briefing, the euro was flat at $1.3070.
Once Draghi's press conference is out of the way, the focus will shift back to the U.S. As well as digesting developments over the budget, investors will be positioning themselves for Friday's monthly nonfarm payrolls report, which often sets the market tone for a week or two after its release.
This time the impact may be less pronounced, analysts said, as the figures for November are likely to have been heavily impacted by Superstorm Sandy, which battered the Eastern Seaboard in late October.
"The effect of hurricane Sandy are likely to be seen in the reading and perhaps with the Dow back above 13,000, some may be eager to book profits if there's any disappointment," he added.
There will also be interest in the share performance of Apple, the world's biggest company by market capitalization, after it suffered a big reverse on Wednesday.
"We will look at how Apple recovers from its worst day in four years, falling 6 percent yesterday after missing out on a Chinese deal to Nokia and fears that margin rates in the U.S. will rise," said Will Hedden, sales trader at IG.
Earlier in Asia, shares in China were flat-footed after big gains in the previous session when investors were cheered by hopes of more stimulus measures. The main Shanghai index ended 0.1 percent lower at 2,124.80, while Hong Kong's Hang Seng fell 0.1 percent to 22,249.81.
However, Japan's Nikkei 225 index rose 0.8 percent, in part buoyed by a weaker yen, to close at 9,545.16. That was its first closing above 9,500 since April.
Oil prices edged higher alongside equities, with the benchmark New York rate up 26 cents at $88.14 a barrel.