European stocks close:

European stocks rallied to their highest in 17 months as optimism grew that U.S. President Barack Obama will reach an agreement with Congress on a new budget.

Obama said after European markets closed yesterday that the two political parties can agree on a framework for a budget deal to prevent $607 billion of automatic tax increases and spending cuts from coming into effect in January.

A European Commission report showed that economic confidence in the euro area climbed in November from a three- year low. The index of executive and consumer sentiment in the region increased to 85.7 from a revised 84.3 in October. Economists had forecast the gauge would be unchanged from an initial reading of 84.5.

Another release showed German unemployment rose less this month than economists had predicted. The number of people without jobs increased 5,000 to 2.94 million, the Federal Labor Agency said. Economists had forecast joblessness would climb by 16,000, according to the average estimate.

National benchmark indexes advanced in every western- European market except Greece. The U.K.’s FTSE 100 climbed 1.2 percent, France’s CAC 40 gained 1.5 percent and Germany’s DAX added 0.8 percent.

Rio Tinto jumped 5.1 percent to 3,090 pence after saying it will cut $5 billion from operating and support costs next year. The mining company also said that it will increase production at its iron ore, copper and alumina units.

Invensys Plc soared 8.9 percent to 305 pence. The maker of software for London Underground trains will probably be acquired after completing the sale of its rail-signaling division to Siemens AG, RBC said. After the close of European trading yesterday, Invensys said it agreed to sell the unit to Siemens for 1.74 billion pounds ($2.8 billion). Вarclays Plc and Bank of America Corp. also recommended buying the shares. Invensys posted its biggest two-day rally since at least 1988.

Volkswagen AG added 1.3 percent to 165.80 euros, its highest price in at least 20 years, after Europe’s largest carmaker said it will extend its partnership with China’s FAW Group beyond 2016, when the existing contract expires. The new joint venture will run for an additional 25 years. Both companies concluded that neither side has infringed on technology patents, Volkswagen said.