The dollar, bond yields and oil prices fell, easing fears of inflation, Reuters reports.
US President Donald Trump said yesterday - just hours after threatening new strikes on Iran, that a deal could be reached this weekend. He said that talks with Tehran had reached the highest levels of the Iranian leadership and had received the approval of a broad coalition of regional powers.
Trump made his statement after repeated previous displays of optimism that failed to produce a real agreement. That has shaken market sentiment.
"This time around, the situation looks perhaps a little more concrete than what we have seen so far," said Ray Attrill, head of currency strategy at the National Australia Bank.
"If we hear something from Iran that sounds positive about a peace deal, it is clear that the probabilities will change very sharply."
If confirmed, the agreement would represent the most significant diplomatic breakthrough yet to end the three-month war that has sent global energy prices soaring. To curb inflation fueled by the conflict, the European Central Bank has been raising interest rates for almost three years.
The news of a possible deal sent oil prices to their lowest levels in two months. U.S. West Texas Intermediate crude futures fell 1.9% to $86.08 a barrel after falling 2.6% overnight. Brent crude futures fell 1.5% to $89.08 a barrel after falling nearly 3% overnight.
Japan's Nikkei 225 rose 4.3%. Australian mining stocks rose 1.8% and South Korea's KOSPI jumped 8.3%.
On Wall Street, major stock indexes posted strong gains overnight, with all three posting their biggest daily gains since the U.S.-Iran ceasefire agreement was reached on April 8, when a short-term truce was agreed. The Nasdaq rose 2.5% on expectations of a successful SpaceX debut.
Data showed that the conflict in the Middle East has pushed up energy prices. Meanwhile, the number of Americans filing for unemployment benefits rose slightly last week, suggesting that the labor market remains resilient.
As markets reduced their expectations for a Federal Reserve rate hike this year, U.S. Treasuries rose. The probability of an October rate hike fell to 36% from 51%.
The yield on two-year U.S. Treasuries was unchanged at 4.066%, after falling 6 basis points overnight. The yield on the benchmark 10-year note was held at 4.4631%, after falling nearly 8 basis points overnight.
The dollar's losses were linked to lower bond yields. The dollar index, which measures the value of the US currency against its major rivals, settled at 99.78 after falling 0.4% in the previous session.
The Japanese yen rose 0.1% to 160.19 yen per dollar, after weakening 0.4% in the previous session. However, the yen remained near the key 160 level, and market participants were watching for possible intervention by Japanese authorities.
A weaker dollar supported the precious metals market. Spot gold rose 0.2% to $4,222 an ounce after a 3.5% jump overnight, while spot silver rose 0.3% to $67.52 an ounce after a 5.8% gain in the previous session.