British stocks were the leaders in Europe on Tuesday, the first London trading session since the Brexit deal on Christmas Eve.
The London FTSE 100 rose 1.9 percent in morning trading, while the mid-cap FTSE 250 rose 1.4 percent.
London markets closed at lunchtime last Thursday and although a deal was deemed "imminent" at the time, traders had no opportunity to respond to the formal sealing of the deal later in the day. The market was closed on Monday due to a public holiday.
The pound sterling also rebounded to $ 1.35 on Tuesday after falling in the previous session. It did not hit its highs for the year above $ 1.36, with investors saying the UK-EU trade deal was largely priced in and remained cautious as the deal doesn't cover major industries like financial services.
British markets also missed a broad rally on Monday that pushed the German Dax and Wall Street S&P 500 to new record highs.
European markets continued to surge on Tuesday, aided by new US stimulus measures designed to prop up the world's largest economy. The CAC 40 from Dax and France increased by around 0.4 percent on Tuesday.
Markets in Asia rose as well, and MSCI's assessment of the equity markets in the region rose 1 percent. Japan's Topix benchmark gained 1.7 percent, while Hong Kong's Hang Seng and Australia's S & P / ASX 200 rose 1 percent and 0.5 percent, respectively.
Investor sentiment was fueled Monday by Donald Trump, who agreed to free up hundreds of billions of dollars in pandemic spending. Mr Trump had previously refused to sign the deal, which he described as "a shame".
"The deal increases prospects for the US economy ahead of the new administration's takeover and has a positive impact on risk-weighted assets," said César Pérez Ruiz, chief investment officer, Pictet Wealth Management.
That bullish outlook continued through Tuesday after the US House of Representatives passed a measure to increase direct payouts to Americans from $ 600 per person to $ 2,000. The passage of the bill, backed by Mr Trump, puts the spotlight on the Republican-controlled Senate, which has so far opposed the increase.
Marcus Widén, an economist at SEB, said the specter of a larger stimulus plan was one factor that helped build "confidence in the US economy and risk appetite for 2021".
Futures, which track the S&P 500 index, rose 0.5 percent Tuesday, suggesting the Wall Street benchmark index will build on Monday's all-time high.
In Hong Kong, shares in Chinese tech companies rebounded on concerns about government action against the sector. Alibaba, the e-commerce group, rose nearly 6 percent after falling 8 percent the day before after Chinese authorities reprimanded Ant Group, Alibaba's payment-oriented sister company, for alleged regulatory flaws.
Beijing's moves point to a "turnaround in technology regulation that we believe will be the industry's biggest challenge in 2021," added Pérez Ruiz.
The Internet and gaming company Tencent also grew by 3.1 percent.
In other Asian countries, mainland China's CSI 300 fell 0.4 percent in Shanghai and Shenzhen, despite news that the EU and China were ready to sign a long-awaited business investment deal.
In commodities, oil continued to rise in hopes that higher stimulus spending would fuel the US economy. Brent crude, the international benchmark, rose 1.2 percent to $ 51.44 a barrel. West Texas Intermediate, the US marker, rose 1.1 percent to $ 48.15 a barrel.
The dollar, measured against a basket of American trading colleagues, fell 0.3 percent as further fiscal stimulus was expected.
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