German stocks rise as Merkel forges 'grand coalition'

German shares outperformed their peers in Europe on Wednesday after the country's major parties agreed to form a new government and a measure of consumer confidence hit a six-year high.

Trading volumes were relatively light, however, as traders in the US started packing up for the Thanksgiving holiday.

The news that German Chancellor Angela Merkel's Christian Democrats have agreed the outlines of a "grand coalition" with the Social Democrats after two months of negotiations helped set the tone early in markets, particularly in Europe.

The rise in the GfK confidence indicator for Germany to 7.4 points for December from 7.1 in November also helped buoy stocks. It raised hopes that consumers in Europe's largest economy may be spending more — a development that could boost the battered economies of the 17-country eurozone, such as Greece and Spain.

"With a new minimum wage expected to come in as part of the coalition agreement, this should only fuel further spending from consumers, prompting further rises in these confidence figures and hopefully, more of a rebalancing in the region," said Craig Erlam, market analyst at Alpari.

Germany's DAX was one of Europe's best performers, trading 0.7 percent higher at 9,350. Elsewhere in Europe, the CAC-40 in France rose 0.4 percent to 4,296 while the FTSE 100 index of leading British shares was 0.3 percent higher at 6,658.

In the US, the Dow Jones industrial average was up 0.2 percent at 16,102 while the broader S&P 500 index rose 0.3 percent to 1,807.

Sentiment has been positive of late, particularly in the US, with the Nasdaq composite index the latest stock index to push through a key hurdle. On Tuesday, it closed above 4,000 for the first time since the end of the dot-com boom in 2000. It was up a further 0.5 percent Wednesday at 4,036.

A mixed bag of US economic data — weekly jobless claims were solid but durable goods orders disappointed — had little market impact as traders were heading out for Thursday's Thanksgiving break. Though US markets reopen on Friday, trading levels will likely remain light through the week.

Earlier in Asia, Japan's Nikkei 225 closed down 0.4 percent at 15,449.63 but Hong Kong's Hang Seng climbed 0.5 percent to 23,806.35. China's Shanghai Composite rose 0.8 percent to 2,201.07 and South Korea's Kospi was up 0.3 percent at 2,028.81.

Thailand's stock index climbed 0.9 percent after the central bank unexpectedly cut its policy interest rate by a quarter percentage point as escalating protests to topple the government add to pressure on the economy.

Elsewhere, the euro continued to recoup some recent losses, trading 0.1 percent higher at $1.3581.

The dollar was 0.8 percent higher at 102.07 yen, just shy of its earlier six-month high of 102.17 yen, as traders priced in the likelihood of further monetary easing by the Bank of Japan, which is trying to lift the world's number 3 economy and get inflation up to the 2 percent target.

"The belief of additional BoJ easing in 2014 will be important in keeping the yen on a weaker footing," said Derek Halpenny, an analyst at Bank of Tokyo-Mitsubishi UFJ.