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LONDON, Nov 19 AFP

November 20 2012, 05:24AM

European stock markets have soared on rising prospects that the United States can avoid falling back into recession, while traders seemed to take an upcoming EU budget summit in stride.

The rally also came a day ahead of a meeting of eurozone finance ministers that could unlock a critical instalment of bailout loans for Greece.

At close on Monday, London's FTSE 100 index of leading companies soared 2.36 per cent to 5,737.66 points, Frankfurt's DAX 30 rose by 2.49 per cent to 7,123.84 points, while in Paris the CAC 40 shot up by 2.93 per cent at 3,439.58 points.

Milan's FTSE Mib jumped 3.05 per cent and Madrid's Ibex 30 rose 2.31 per cent.

The euro climbed to $US1.2812 from $US1.2741 late in New York on Friday.

On the London Bullion Market, gold prices rose to $US1,730.50 an ounce from $US1,713.50 on Friday.

"While the US 'fiscal cliff' motive has provided an explanation as to why the markets were falling for quite a while now, the progress on that front ... is definitely improving the risk appetite" in Monday trading, said Gekko Global Markets trader Anita Paluch.

US stocks also scored solid gains on Monday. In midday trade, the Dow Jones Industrial Average was up 1.23 per cent, the S&P 500-stock index advanced 1.57 per cent, while the tech-rich Nasdaq Composite leaped 1.73 per cent.

"Markets are looking to extend Friday's gains on hopes that progress will be made surrounding the fiscal cliff," said Wells Fargo Advisors analysts.

"Investors are encouraged after President Obama said on his trip to Southeast Asia that he believes a budget deal will be reached."

US President Barack Obama - currently on a South-East Asia visit - has met congressional leaders from both parties to open talks on pulling back from the fiscal cliff of tax hikes and spending cuts, due to take effect on January 1.

Fears around the world over the looming deadline have depressed markets for most of the month.

The two sides stressed willingness to find common ground and avoid a face-off like that over the country's debt ceiling, which almost brought the country to a standstill in August.

Growing optimism that the US can resolve the problem gave a boost to banking share prices on Monday. British lender Barclays won 6.64 per cent to 249.75 pence, French bank Societe Generale rose 5.52 per cent to 25.78 euros and Deutsche Bank advanced 4.68 per cent to 33.66 euros.

The appetite for risk came despite the European Union looking set for fresh trouble this week as an extraordinary summit called to agree a long-term trillion-euro budget heads for an ugly showdown, possibly even failure.

Already weakened by three years of economic crisis, the 27-nation bloc of half a billion people faces new trauma at the two-day summit starting Thursday after weeks of talks that have exposed stark divisions between pro- and anti-austerity nations, as well as between the haves and have-nots.

European leaders begin talks on the EU's next seven-year budget on Thursday, with British Prime Minister David Cameron in the role of leading spoiler - though most governments are putting national interest well above shared concerns.

Ahead of the summit, eurozone finance ministers tackle Greece's financial strains.

Greek Finance Minister Yannis Stournaras on Monday said his country was "totally ready" for Tuesday's ministerial meeting.

The immediate issue is approval of about 31 billion euros ($A38 billion) in long-delayed aid funds after Greece adopted a tough new austerity package and 2013 budget, as required by its creditors - the EU, IMF and the European Central Bank.