Voters will be weighing in on Trump's four years in office, where the real estate mogul presided over an expanding economy with record low unemployment that ended suddenly with the world's largest coronavirus outbreak beginning in March.
Traders are looking at the contest largely through the prism of the election's impact on the US response to the pandemic, particularly the possibility that a political rebalancing could get Congress and the White House to agree on a new economic stimulus package.
Asian, European and US equities rallied as traders put their bets on a Democratic sweep of both the presidency and the Republican-held Senate that likely would mean Congress would approve a new spending bill early next year, if not sooner.
"The main reason why a Biden win is so sought after from a market perspective, is that a 'blue wave' - i.e. the Democrats crucially taking the Senate - would see a stimulus plan far greater than anything Republicans would be willing to go for," said Spreadex analyst Connor Campbell.
But even if the Democratic onslaught falters, "Whoever gets in (is)... probably going to have to spend some money, be that through a stimulus package or infrastructure" bill, JJ Kinahan of TD Ameritrade told AFP.
The dollar slid against other major currencies, reflecting traders' expectations of more stimulus money that would weaken the value of the greenback.
Meanwhile, oil prices jumped higher, clawing back more of their recent losses.
Charging ahead
Investors also are betting the battle for the White House will be decided quickly.
After months of uncertainty, Patrick O'Hare of Briefing.com said Monday's rally is "predicated somewhat on the hope that we're about to get closure on the election."
In the previous presidential election in 2016, markets prematurely celebrated a victory by Democrat Hillary Clinton, only to be surprised when Trump triumphed in the vote -- a dynamic Campbell said is happening again this year with polls putting Biden ahead.
"Choosing to ignore the slim - but not slim enough - likelihood of Trump winning a second term, the markets continued to aggressively rebound," he said.
Traders nevertheless remain fearful that a contested result could spell fresh market turmoil, legal chaos and even violent unrest in a nation already bitterly divided.
"The risk is that investors are getting ahead of themselves, given the potential for a long, drawn-out battle over the result of the US election in coming weeks," warned analyst Chris Beauchamp at trading firm IG.
While Tuesday is formally Election Day, in reality Americans have been voting for weeks. The Covid-19 pandemic caused a huge expansion in mail-in and early voting, and nearly 100 million people had already cast their ballots, though many of those ballots will not be counted until polls close.
The United States is in dire need of a fresh rescue package as the disease flares up again, threatening a stuttering recovery in the world's top economy made worse by lawmakers' months of fruitless negotiations over more aid.
"Another potential uncertainty for markets would be the Republicans hanging on to the Senate in what would allow them to block some of the more contentious parts of the Democrat's plans for the US economy," CMC Markets UK analyst Michael Hewson said.
"The ideal scenario would be a clear-cut outcome."
The rebound in oil prices was fueled by news that Russia is considering extending a production cut agreed with OPEC this year by another three months.
Key figures around 2115 GMT
New York - Dow: UP 2.1 percent at 27,480.03 (close)
New York - S&P 500: UP 1.8 percent at 3,369.16 (close)
New York - Nasdaq: UP 1.9 percent at 11,160.57 (close)
London - FTSE 100: UP 2.3 percent at 5,786.77 points (close)
Frankfurt - DAX 30: UP 2.6 percent at 12,088.98 (close)
Paris - CAC 40: UP 2.4 percent at 4,805.61 (close)
EURO STOXX 50: UP 2.6 percent at 3,098.72 (close)
Hong Kong - Hang Seng: UP 2.0 percent at 24,939.73 (close)
Shanghai - Composite: UP 1.4 percent at 3,271.07 (close)
Tokyo - Nikkei 225: Closed for a holiday
Euro/dollar: UP at $1.1711 from $1.1641 at 2100 GMT
Dollar/yen: DOWN at 104.52 yen from 104.72 yen
Pound/dollar: UP at $1.3035 from $1.2917
Euro/pound: DOWN at 89.82 pence from 90.12 pence
West Texas Intermediate: UP 2.8 percent at $37.84 per barrel
Brent North Sea crude: UP 2.3 percent at $39.87.
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