European shares closed higher on Thursday, posting their biggest gains for a month, as hopes grew that the U.S. would strike a short-term debt limit deal to stop the country defaulting.
The FTSEurofirst Index provisionally closed up 1.6 percent to 1,244.19 points, stopping a three-day losing streak, with a broad-based rally displacing the weak investor sentiment seen in the last nine sessions. U.S. stocks also rallied out of the gate Thursday, while Asian equity markets closed mixed, as hopes rose for a break in the impasse in the U.S.
As the shutdown entered a tenth day on Thursday, the House GOP leadership will meet with President Barack Obama at the White House in a bid to resolve the budget deadlock. On Wednesday, there were indications that both sides might be open to a short-term extension of the $16.7 trillion borrowing limit and a temporary end to the shutdown, giving them more time to resolve their differences.
(Read More: Are investors ignoring much bigger global risks?)
"There is one major 'if' attached to the President's potential olive branch, and that is reopening the government, something that still looks very unlikely in the interim as the partisan politics from both sides continues to rage," Evan Lucas, an analyst at IG said in a Thursday note.
Yellen replaces Bernanke
Also across the pond, President Obama officially nominated Federal Reserve Vice Chair Janet Yellen to replace Ben Bernanke as the chairman of the U.S. central bank.
Yellen is widely perceived as being more dovish on monetary policy and investors expect her to take a slower path towards a reduction of the Fed's bond-buying program.
(Read More: Pres. Obama nominates Janet Yellen to lead Fed)
Meanwhile, minutes from the Fed's latest meeting in September showed that the central bank's decision not to scale back its bond-buying program was a "relatively close call" for policymakers.
In other events, the Bank of England left interest rates at a record low of 0.5 percent and its asset purchase target unchanged at £375 billion, as expected on Thursday.
WH Smith up 6%
In stocks news, shares of U.K. retailer WH Smith closed up by 5.27 percent, after the company reported a 6 percent rise in full-year profit and announced a share buyback.
Recruitment company Hays posted a 8 percent rise in net fee income on Thursday, giving bullish descriptions of performance from most of its units; shares provisionally closed up 2.16 percent.
Alcatel Lucent shares closed up 8 percent after posting declines on Wednesday, after the French government said that the technology firm needed to think carefully about cost-cutting measures announced on Tuesday.
Follow us on Twitter: @CNBCWorld