Global markets have surged on the first trading day of the new year in relief that the US had stepped back from the fiscal cliff, propelling the FTSE 100 above 6000 for the first time since July 2011.
After weeks of worry, the US Senate and House of Representatives finally passed a compromise bill to water down the combined tax hikes and spending cuts, which had been due to come into effect this month, avoiding the prospect of the world’s biggest economy moving back into recession.
Asian markets led the way, with Hong Kong rising 2.9% to its highest level since June 2011.
In London, the FTSE 100 closed up 129.5 points, or 2.2%, at 6027.37. Banking shares were among the biggest risers on relief over the US agreement, with Barclays 5% higher and Lloyds Banking Group up 4%. Mining shares were also boosted by growing optimism about the prospects for the global economy, with the sector accounting for eight of the 10 risers in the leading index.
US investors have also reacted positively to the late night agreement, despite worries the deal could see the country’s credit rating lowered. The Dow Jones Industrial Average has opened up 224 points, or 1.7%, higher at 13,326.
In Europe, Germany’s Dax and France’s Cac have both risen more than 2%. Even the struggling eurozone countries have been lifted, with the Athens market up 3.8%, Italy 3.6% higher and Spain adding 3%.
But some cautioned that Tuesday’s US agreement had merely delayed a decision for two months, and predicted further volatility to come.
Mike van Dulken, head of research at Accendo Markets, said: "We are back near the highs of last Thursday when 6000 was almost missed by just a whisker. Some may be disappointed that the initial reaction to the fiscal cliff deal has not taken up back there quicker, however, optimists must bear in mind that the deal has only bought an extra two months and pessimists should remember that full volume trading may take a few more days to resume."
Simon Denham at Capital Spreads said: "The problem is that all the US has managed to do is take a leaf out of the European’s books by kicking the can down the road. Spending cut delays for a couple of months means that more negotiations will take place in only a few weeks time and we will have to go over the same old ground again."
Meanwhile, Lee McDarby at Investec Corporate Treasury, pointed out an additional element in the next set of US discussions: "A final note on the cliff for now is that when negotiations re-open in a few weeks’ time they will have to cater for the US debt ceiling, which wasn’t addressed in the bill passed on Tuesday and is set to be reached mid-February. It appears the US government is going to have a busy and challenging beginning to 2013."
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