European stocks rose early today, bouncing from a three-month closing low, on signs political negotiations to overcome major fiscal policy disagreement in the United States had started well.

On Friday, leaders of the US Senate and House said they would be flexible in efforts to settle fiscal policy differences to avert a $600 billion "fiscal cliff" of tax hikes and spending cuts, sparking a late rally on Wall Street.

"The rebound should be quite significant because there are new hopes regarding the fiscal cliff and last week was quite bad," a London-based trader said.

He expected France's CAC 40, up 1 per cent at 3,374.00 points earlier, to rise between 1 and 2 per cent in the very short term, with Thursday's close at 3,400 points as a possible target.

The pan-European FTSEurofirst 300 index, which fell 2.7 per cent last week, was up 0.8 per cent, led by cyclical sectors including basic resources and banks.

The FTSE 100 index was up 46.65 points, or 0.8 per cent, at 5,652.24, having dropped 1.3 per cent on Friday, taking its weekly losses to 2.8 per cent - the steepest since May.

German Bund futures slipped today also on optimism US politicians would broker a deal, though worries over aid for Greece were seen limiting falls.

Bund futures fell 23 ticks to 143.08 but remained firmly within the 142.83 to 143.48 range that held throughout last week. US debt futures also dipped and equity markets rose.

In Japan, the Nikkei average climbed for a fourth day to a two-month high on growing expectations that Japan's main opposition party will

win next month's election and step up pressure on the central bank to ease monetary policy.

The Nikkei advanced 1.4 per cent to 9,153.20, comfortably breaking above its 200-day moving average at 9,074.29 and setting its sights on the next resistance level at 9,200. The broader Topix also gained 1.4 per cent to 762.16 in heavy trade, with 2.0 billion shares changing hands.