3 Jan 2013

Stock markets rally on cliff deal

10:33 am on 3 January 2013

Global stock markets rallied on Wednesday after a short-term deal was reached in the United States to stave off the fiscal cliff.

The Dow Jones gained 2.19% by the close of trading on Wall Street and the Nasdaq was up by 3.07%.

European shares were up by about 2% for the day.

The FTSE 100 index rose 145 points to 6,043 points. The DAX in Frankfurt was up 1.88% and the CAC-40 in Paris was up 2.13%.

The Ibex-35 index in Madrid was up 3.43% and the FTSE Mib in Milan gained 3.81%.

Earlier, the Hang Seng index in Hong Kong rose 655.06 points to 23,311.98 on turnover of HK$82.44 billion. It was the first time it has closed above 23,000 since 2 June, 2011.

Spending cuts worth $US109 billion and tax rises worth $US600 billion were due to begin on 1 January.

The House of Representatives passed a Senate bill by 257 votes to 167 late on Tuesday. Earlier, the Senate passed the legislation by 89 votes to eight.

However, the deal has only postponed further negotiations over spending cuts and the government debt ceiling for two months.

US Treasury Secretary Tim Geithner indicated just before the New Year that the federal debt ceiling - a legal cap on total borrowing set by Congress - would be reached by the end of February.

The BBC reports Tuesday's deal did not include an increase in the debt ceiling. It postpones steep automatic spending cuts to federal government spending on defence and education by two months.

The BBC reports that Republicans likely to demand deep cuts, particularly to social security programmes, in return for an increase in the legal cap on government borrowing. Democrats would prefer to reduce the government deficit via further tax rises.

The federal debt ceiling is $US14.7 trillion.