Optimism that US lawmakers might be nearer to breaking their impasse over increasing the debt ceiling and re-opening the federal government is lifting investor sentiment.
The top-ranking Democrat in the Senate has reportedly put a new proposal to his Republican counterpart and the two will meet with President Barack Obama today on Washington to see if there's a consensus.
"My hope is that a spirit of cooperation will move us forward in the next few hours," Obama told reporters after visiting a charity group.
The plan would push a fresh fight over the debt ceiling into December, averting a potential default by the US which could occur as early as this week.
The reaction on Wall Street was predictable. After opening lower, all three key benchmarks were higher in afternoon trading. The Dow Jones Industrial Average gained 0.15 per cent, the Standard & Poor's 500 Index rose 0.19 per cent and the Nasdaq Composite Index advanced 0.32 per cent.
"It's this real neurotic, schizophrenic trading that we're seeing based on the developments or lack of developments in Washington," Donald Selkin, the chief market strategist at National Securities, told Bloomberg News.
Shares of Pfizer, up 1.4 per cent, and Walt Disney, up 0.8 per cent, led the Dow higher.
Outside of the partisan battle in Washington, there was little substantive news for investors.
Shares in Netflix jumped on reports the online-movie and TV show sharing service is negotiating with several US cable companies, a partnership which could substantially expand its potential audience.
This week's third-quarter results will resume tomorrow in the US with Citigroup, Coca-Cola, J&J, Intel and Yahoo.
In Europe, shares ended the day little changed even with improving factory output. London's FTSE 100 ended up 0.3 per cent, Germany's DAX slipped 0.1 per cent and France's CAC 40 edged 0.07 per cent higher.
"It's not time to be adventurous right now," Alastair Winter, chief economist at Daniel Stewart, told Reuters. "I don't think people should be in a rush to do anything."
And while there's fresh optimism in Washington at the moment, many strategists have cut their outlooks for the US dollar for a third month and concern is rising that there will be a longer lasting price to pay for the political standoff, Bloomberg says.
The Bloomberg US Dollar Index, which tracks the greenback against 10 counterparts including the euro, yen and pound, is down 4.3 per cent from a three-year high in July.
Investors are increasingly reluctant to hold too many US dollars as the federal government lurches from one crisis to the next, leading to the prospect of a slower end to the Federal Reserve's bond-buying program.
"There's some longer-term ramifications the dollar's got to deal with as well, all of which are negative," Richard Franulovich, the chief currency strategist for the northern hemisphere at Westpac in New York, told Bloomberg.