London  — World shares and bond yields rode a renewed surge in risk appetite on Tuesday, as investors were optimistic about US-China trade talks and cheered Washington’s deal to avoid another government shutdown.

Tokyo’s Nikkei set the tone with its best day of the year so far and Europe wasted little time in trying to lift the STOXX 600 back to the two-month high it set last week.

Germany’s DAX jumped more than 1.2%, after rising 1% on Monday, and Paris and Milan were up 0.8%, while London’s FTSE approached a four-month peak despite ongoing Brexit uncertainty. The dollar hovered at a two-month high and the Australian dollar also gained. The yen and Swiss franc dipped while US treasury and German bund yields edged up as investors jettisoned safe havens.

“We have had two bits of relatively good news overnight —  optimism about the US shutdown not resuming and optimism about a trade deal,” said Société Générale strategist Kit Juckes. “Equities are higher, bond yields are a little bit higher, yen and Swiss franc weakest overnight of the major currencies so it’s sort of risk-on rules, OK!“

Juckes said he reckons there is now a 75% chance that a ratcheting up of US tariffs on Chinese goods at the start of March will be avoided and a 95% chance that another US government shutdown will be dodged.

These odds got a boost on Monday after US law makers reached a tentative deal on border security funding, though aides cautioned that it did not contain the $5.7bn US President Donald Trump wants to build a wall on the Mexican border.

S&P 500 e-mini futures were up nearly 0.5%, pointing to a solid start on Wall Street later after a choppy day on Monday. US and Chinese officials expressed hopes that the new round of talks, which began in Beijing on Monday, will bring them closer to easing their months-long trade war.

Beijing and Washington are trying to hammer out a deal before a March 1 deadline, without which US tariffs on $200bn worth of Chinese imports are scheduled to increase to 25% from 10%. “There will be no winner in a trade war, so at some point they will likely strike a deal,” said Mutsumi Kagawa, chief global strategist at Rakuten Securities in Tokyo.

Big in Japan 

MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.3%. Shanghai rose 0.35%, South Korea’s Kospi climbed 0.6% and Australian shares gained 0.3%. The Nikkei rallied though, shooting up 2.6% after closing on Friday at its lowest level since early January. The Tokyo market was closed on Monday. With the yen backtracking again, shares of exporters, such as vehicle and machinery makers, led the charge.

Separately, Deutsche Bank noted it was 20 years since Japan cut interest rates to zero, something now standard in large parts of Europe.

The dollar held firm, having gained for eight straight sessions against a basket of six major currencies until Monday, its longest rally in two years. Although the US Federal Reserve’s dovish turn dented the dollar earlier this month, some analysts noted that the US currency still has the highest yield among its major peers and that the Fed continues to shrink its balance sheet.

“The dollar is the market’s pet currency at present, regardless of whether concerns about the global economy are on the rise,” currency strategists at Commerzbank said in a note.

The dollar popped up to a six-week high of ¥110.65. In contrast, the euro dropped to as low as $1.1267, its weakest in two and a half months, and last traded at $1.1277.

In commodity markets, oil prices also ticked up as traders weighed support from oil cartel Opec-led supply restraint and a slowdown in the global economy. US crude futures traded at $52.68 a barrel, up 0.5%. Brent crude rose 0.6% to $61.89 per barrel.

Gold was a touch stronger at $1,312 an ounce.