LONDON: European stock markets rose on Tuesday as lawmakers in the United States neared a budget deal to reopen government services and raise the country's borrowing limit to avoid a catastrophic default.

On the downside, shares in British luxury fashion group Burberry slid on news that its long-serving and successful chief executive Angela Ahrendts will step down next year to head up Apple's retail operations.

Approaching midday in the British capital, London's benchmark FTSE 100 index was up 0.77 per cent at 6,558.01 points, as investors reacted to news also that British inflation remained steady in September.

In Frankfurt, the DAX 30 jumped 0.70 per cent to 8,785.29 points and the CAC 40 in Paris grew 0.52 per cent to 4,245.03 compared with Monday's closing values.

“US lawmakers are finally making headway on a deal to avert financial destruction before Thursday's D-day deadline, propping up market sentiment in overnight trade across US and Asian share markets and pulling up Europe,” said Ishaq Siddiqi, market strategist at ETX Capital traders.

With just days to go before Washington runs out of cash to pay its bills, Republicans and Democrats said they are close to an agreement to end a stand-off that has shut the government for two weeks.

While expectations have been for a deal to be made – equities have remained buoyant despite the gridlock – the news will come as a relief because a US default would send global markets tumbling and likely spark another worldwide recession, analysts have claimed.

The European single currency dipped to $1.3555 from $1.3559 in New York late on Monday. The dollar fell to 98.52 yen from 98.67 yen.

Sterling rose against the dollar and euro, while the price of gold fell to $1,259.62 an ounce on the London Bullion Market from $1,285.50 on Monday.

Meanwhile, a survey revealed that investment sentiment in Germany rose in October, in a further sign of strength in the biggest eurozone economy.

The widely watched investor confidence index calculated by the ZEW economic institute rose 3.2 points to 52.8 points, beating a forecast by analysts who said it would remain stable.

It was the highest level since April 2010, as it was in September when the index reached 49.6.

On the corporate front, shares in Burberry slid 4.51 per cent to 1,513.50 points. Burberry's chief creative officer Christopher Bailey will take over from the 53-year-old US national Ahrendts, adding chief executive to his title, the company said in a statement to the London Stock Exchange.

On the upside, shares in British postal operator Royal Mail rallied further, as formal trading of the stock began following its controversial part-privatisation.

Royal Mail shares jumped as high as 490 pence in morning deals on the first day of trade for many of the 690,000 small investors who had bought stock last week.

That increased the value of Royal Mail to as much as GBP4.9 billion ($7.8 billion, 5.8 billion euros), following part-privatisation of the group by Britain's Conservative-Liberal Democrat coalition government. That marked a vast gain of almost 50 per cent from the offer price of 330 pence.

Shares had already surged last Friday, and on Monday, in conditional trading among institutional investors.

In Paris, shares in cable manufacturer Nexans slumped by 12.74 per cent to 37.04 euros after the company warned it would report a loss in the second half of the year and said it would shed 468 jobs in Europe including 206 in France.

Meanwhile, more than 1,000 people demonstrated in Paris against 900 job cuts in France and 10,000 in the world by telecom-equipment maker Alcatel-Lucent. But company head Michel Combes warned that if the restructuring did not go ahead, the group could “disappear” because it had been losing 800 million to 1.0 billion euros per year since 2006.