Associated Press
FILE- In this Tuesday, July 10, 2012, file photo, Douglas Johnson, a trader for Getco Securities from Levittown, Pa., works during early trading at the New York Stock Exchange. U.S.

LONDON — Hopes that lawmakers in Washington are inching toward a deal shored up markets Tuesday, even though time is running out.

With the deadline to increase the debt ceiling just two days away, investors have been remarkably sanguine. A failure to raise the debt ceiling by Oct. 17 could cause the U.S. to default on some of its debts — a development that analysts say could derail the U.S. economic recovery and cause mayhem in financial markets around the world.

The prevailing view in markets appears to be that a deal will be agreed between Republicans in Congress and the White House because no politician will want to be seen as being responsible for a default.

"The history of U.S. fiscal stalemates is that typically a last-minute deal is reached," said Neil MacKinnon, global macro strategist at VTB Capital.

In Europe, the FTSE 100 index of leading British shares was up 0.9 percent at 6,566 while Germany's DAX rose 0.8 percent to 8,767. The CAC-40 in France was 0.7 percent higher at 4,251.

Wall Street was poised for a solid opening, too, with Dow futures up 0.2 percent and the broader S&P 500 futures 0.1 percent higher.

The comments out of the U.S. capital appear to reinforce the markets' views — Congressional aides have predicted that Senate Majority Leader Harry Reid and Republican leader Mitch McConnell could seal an agreement Tuesday that would see the debt ceiling raised to sometime in February. It would also reportedly see the U.S. government, which has been in partial shutdown for two weeks, reopening through Jan. 15.

Earlier, the mood in Asia was largely positive, too. Japan's Nikkei 225 closed up 0.3 percent at 14,441.54 while Hong Kong's Hang Seng gained 0.5 percent to 23,336.52. South Korea's Kospi closed 1 percent higher at 2,040.96. China's Shanghai Composite index bucked the trend, down 0.2 percent at 2,233.41.

The focus remained on developments in Washington in other financial markets as well. In currencies, the dollar was largely being supported by hopes over a debt deal. The euro was down 0.5 percent at $1.3485. However, the dollar was down 0.1 percent at 98.60 yen.