LONDON: World stock markets surged on Wednesday for a roaring start to 2013 after US lawmakers clinched a deal to avert a feared "fiscal cliff" of drastic tax rises and automatic spending cuts.
Investors welcomed news that the US Congress had finally approved an agreement to avert measures which could have sent the world's biggest economy spinning back into recession, with global repercussions.
The agreement was seen as a step, albeit a temporary one, toward correcting US public finances, which are suffering from a huge annual deficit and accumulated mountain of debt.
When European markets closed for the day, London's benchmark FTSE 100 index of top companies had leapt by 2.20 percent to 6,027.37 points, Frankfurt's DAX 30 index had surged 2.19 percent to 7,778.78 points and the Paris CAC-40 had jumped 2.55 percent to 3,733.93 points.
Markets in key peripheral euro zone countries posted even stronger gains, with Madrid's Ibex-35 index soaring by 3.43 percent to 8,447.6 points and Milan's FTSE Mib gaining 3.81 percent to 16,893 points.
"The resolution of the fiscal cliff is clearly the big driver here, but critically we need to try and sustain this rally," said Mike McCudden, head of derivatives at the online broker Interactive Investor.
In New York, US stocks joined the mood, with the Dow Jones Industrial Average up 1.73 percent in midday trading, while the broad-market S&P 500 had gained 1.74 percent and the tech-rich Nasdaq Composite added 2.28 percent.
Among Asian exchanges, the Hong Kong market was the biggest riser earlier in the day, soaring by 2.89 percent in value, with sentiment also lifted by positive Chinese manufacturing data.
Sydney gained 1.23 percent, and Seoul added 1.71 percent. Financial markets in Japan and mainland China were closed for a public holiday.
"It may have come at the last minute, but US lawmakers finally managed to find some common ground by voting through a package of policies designed to avoid the immediate fiscal cliff," noted ETX Capital trader Joe Rundle.
The euro hit a two-week high of $ 1.3300 in Asian deals as investor appetite for risk increased there, but later fell back to 1.3199 as European trading wound down, compared with 1.3193 on Monday before markets closed for the New Years holiday.
The price of gold advanced to $ 1,693.75 an ounce on the London Bullion Market from $ 1,664.0 meanwhile. World oil prices also rose, with New York crude climbing back to $ 92.93 per barrel.
Late on Tuesday, the US House of Representatives passed a deal between the White House and Republicans to raise taxes on the rich and delay for two months automatic budget cuts of $ 109 billion, lifting the clouds of immediate crisis.
The outcome of negotiations had hung in the balance for hours as House conservatives sought to add spending reductions to a version passed by the Senate in the early hours of 2013 which would probably have killed the compromise.
"The fiscal cliff had dominated the agenda for both markets and US lawmakers in the run up to Christmas but with this now seemingly averted, equities are poised to break higher as the 2013 trading year gets underway," noted analyst Fawad Razaqzada at trading group GFT Markets.
Washington's budget and fiscal deadline haunted financial markets throughout December amid concerns that the lack of a compromise would drag the global economy into another lengthy downturn.
ETX Capital analyst Ishaq Siddiqi cautioned that "the US economy did not fall off the cliff but it certainly is standing on the edge still."
Global shares rally after US fiscal cliff deal
