Global markets leap as US avoids falling off ‘fiscal cliff’
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DAVID JOLLY & BETTINA WASSENER
Global stocks kicked off the 2013 trading year with a strong start on Wednesday, as investors welcomed a deal between US President Barack Obama and Congressional Republicans that ended, at least temporarily, an impasse over fiscal policy that had threatened chaos in the new year.
S&P's 500-stock index leapt 1.7 per cent in afternoon trading. The Dow Jones industrial average also jumped 1.7 per cent, or about 225 points, and the Nasdaq composite index climbed 2.2 per cent.
The deadline drama over the fiscal impasse ended when a sufficient number of Republicans in the House of Representatives joined Democrats to back a deal the Senate had reached earlier. The deal modestly raises income taxes on the highest-earning Americans, ends payroll tax cuts and creates permanent tax cuts for others.
"There's clearly a big relief rally," said Christian Schulz, an economist in London with Berenberg Bank.
The Euro Stoxx 50 index of euro zone blue chips ended 2.4 percent higher, while the FTSE 100 index in London gained 2.1 per cent. The euro gained 0.6 per cent to $1.3270, and yields fell on Spanish and Italian government bonds.
Asian indexes also gained, with the Hang Seng Index in Hong Kong rising 2.9 percent. But markets in Japan and mainland China were closed for holidays. Still, analysts warned that the gains might not last, as the last-minute deal had only bought time.
The deal "is likely to prove only a temporary fix to address fiscal uncertainty in the US," Lee Hardman, an analyst at Bank of Tokyo-Mitsubishi UFJ in London, wrote in a research note, pointing out that "the planned sequester government spending cuts merely delayed for two months."
Investors, he added, probably will begin to focus on "whether US politicians will be able to raise the debt ceiling in the next two months to avert a technical default, and whether the delayed sequester spending cuts will now come into force on March 1."