US stocks advanced, sending the Standard & Poor's 500 Index to the highest level since October, as investors weighed prospects for a budget deal in Washington.

The S&P 500 gained 1.2 per cent to 1,430.45 at 4 p.m. in New York.

"It's a historic tug of war: pulling on one side is the fiscal cliff, pulling the other side is continued global monetary easing," David Sowerby, a portfolio manager at Boston- based Loomis Sayles & Co., said in a telephone interview. His firm oversees about $US175 billion. "The most positive thing for the market is valuation and an accommodative Fed policy."

The equity benchmark has lost 0.7 per cent so far this quarter, the second-worst performance after Norway among 24 developed markets, as President Barack Obama and House Republicans differed over how to avoid automatic deficit- reduction measures. The Federal Reserve said last week that it will buy $US45 billion a month of Treasury securities starting in January to help boost growth, in addition to $US40 billion a month of mortgage-debt purchases under a previous plan.

The S&P 500 is trading at 14.6 times reported earnings, compared with the average of 16.4 since 1954, data compiled by Bloomberg show. The benchmark is up 14 per cent this year.

Obama and House Speaker John Boehner met at the White House today in their talks on avoiding spending cuts and tax increases in January, according to Michael Steel, Boehner's spokesman. The aide gave no further details, nor did the White House. The Congressional Budget Office has said a failure to prevent more than $US600 billion in automatic spending cuts and tax increases, known as the fiscal cliff, may lead to a recession in the first half of 2013.

Republicans and Democrats in Congress are starting to talk about the benefits of waiting until January to reach a budget deal. Obama rejected an offer by Boehner to raise rates on household income above $US1 million a year in exchange for containing entitlement program costs.

Manufacturing in the New York region shrank more than forecast in December, showing weakness in the industry is persisting as the year draws to a close.

In Japan, the Nikkei 225 Stock Average rose to the highest in eight months after the Liberal Democratic Party returned to power on a campaign for more economic stimulus and the doubling of the nation's inflation goal.

BLOOMBERG