LONDON, Jan 21 (Reuters) - European shares edged higher on Monday, with a key index moving back towards its best level in nearly two years as sentiment towards equities was buoyed by moves to break a budget impasse in the United States.
The pan-European FTSEurofirst 300 index rose 0.3 percent to 1,166.92 points, having reached a near two-year high of 1,170.29 points earlier this month.
The euro zone's blue-chip Euro STOXX 50 also advanced by 0.5 percent to 2,721.87 points.
Traders cited optimism that the United States would reach a deal to raise its debt ceiling as one of the principal factors behind the market rise, after the U.S. Republican party said it would seek to pass a three-month extension of federal borrowing authority next week.
"There's a bit of encouragement coming out of the U.S.," said Toby Campbell-Gray, head of trading at Tavira Securities in Monaco.
He added that equity markets had remained resilient in the face of an uncertain economic outlook since many investors had stepped in to buy stocks "on the dip" during days when shares had fallen.
"Bad news is taken well and good news is taken even better," said Campbell-Gray.