Markets rise following fiscal cliff deal

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Stock markets rose strongly in early trading as investors welcomed the news that the US had made a deal to avert the 'fiscal cliff'.

Stock markets, which had been unsettled by worries that the deal would fall through, rose in relief.

In opening trade, London's FTSE 100 (FTSE: ^FTSE - news) index of top companies jumped 1.3pc at 5,973.07 points, Frankfurt's DAX 30 (Xetra: ^GDAXI - news) index was up 1.5pc to 7,7311.41 points and in Paris the CAC 40 (Paris: ^FCHI - news) rallied 1.7pc to 3,703.97.

Asian markets gained with Hong Kong jumping 2pc to an 18-month high.

The fiscal cliff agreement was sealed just hours before world markets were due to return from the New Year holiday.

Economists feared that, without action by Congress, the tax increases and spending cuts that technically took effect on New Year's Day would cause unemployment to surge and send the US economy back into recession.

Cantor Index analyst David Buik said: "There was never any chance of there being anything worse than a fudged agreement on the proposed budget, including taxation increases for the better-off.

"The ramifications of no agreement were not worth considering."

ETX Capital trader Joe Rundle said he expected US markets to react in the same fashion when they open later today.

The extraordinary late-night House of Representatives vote took place less than 24 hours after the Senate passed the measure in the predawn hours on New Year's Day. The legislation cleared the Senate hours after Biden and McConnell, veteran negotiators, sealed a deal.

In addition to neutralising middle class tax increases and spending cuts that technically took effect at midnight on Monday, the legislation raises tax rates on incomes over $400,000 for individuals and $450,000 for couples.

Remarkably, in a party that swore off tax increases two decades ago, dozens of Republicans supported the bill in both houses of Congress.

The Senate approved the measure on a vote of 89-8 less than 24 hours earlier, and in the interim, rebellious House conservatives demanded a vote to add significant spending cuts to the measure. But in the end they retreated.

Oil and gold prices also rose on Wednesday.