Cliff deal spurs global market rally

European and Asian stocks make strong gains on relief that the $600bn U.S. fiscal cliff has been avoided.

Story highlights

  • European and Asian stock indices make strong gains on relief over U.S. fiscal cliff deal
  • The euro sees increased demand, rising against both the dollar and the yen
  • Risk appetite precipitated by U.S. deal is fueled further by Chinese manufacturing expansion

Wednesday 09:40 GMT. European equities took heart from the last-gasp deal in Washington which kept the US economy away from the edge of the fiscal cliff.

The first trading session of 2013 began with strong gains for the region's main indices, after Asian markets also strode higher on widespread relief that the $600bn series of automatic tax rises and spending cuts had been avoided.

Read more: House staves off fiscal cliff, but more money squabbles lie ahead

London's FTSE 100 returned from the new year break up 1.6 per cent and in sight of the 6,000 points level it never managed to cross in 2012. Frankfurt's Xetra Dax rose even further, up 2 per cent and the CAC 40 in Paris was 1.7 per cent stronger.

Overall, Europe's FTSE Eurofirst 300 was 1.5 per cent higher at 1,150.36 and the FTSE All World index gained 0.9 per cent to 225.8. Italy's FTSE MIB was 2.8 per cent higher. Futures trading implied a strong start for Wall Street markets.

European banks made noticeable progress as traders started 2013 in bullish fashion. Société Générale topped the Paris benchmark, up 4.1 per cent. Commerzbank rose 3.7 per cent in Frankfurt and Intesa Sanpaolo was 4.2 per cent stronger.

Read more: CBO: Deal adds $4tn to U.S. deficits

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The euro was also in demand. It rose 0.4 per cent against the dollar to $1.3272. UBS analysts predicted the shared currency could reach $1.3493 if it broke above resistance levels at $1.3386.

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The single currency also rose 0.6 per cent against the yen, taking it above Y115 for the first time since July 2011.

The US dollar extended losses against most major currencies as risk appetite returned. The dollar dropped 0.5 per cent against the euro, and 0.8 per cent against the Australian dollar. But the yen continued to slide on expectations the Bank of Japan will take more aggressive easing steps to shore up the slowing economy and fight deflation. The dollar index, which tracks the US currency against a range of its rivals, was 0.4 per cent weaker.

Big issues still pending

News of the third straight monthly expansion in China's manufacturing sector also helped risk appetite, lifting metals prices. Copper was up more than 2 per cent at $8,130 a tonne, near a three-week high.

That helped resource stocks, not least in London, where there were six mining and metals groups on the list of the top 10 biggest gainers on the FTSE 100. They were led by Evraz, the Russian steelmaker up 6 per cent at 274p.

On commodities markets Brent crude rose $1 to $112.11 a barrel. Spot gold was steady at $1,671 a troy ounce.

Asian stock markets had already begun the year in positive territory amid optimism over a US budget deal. Hong Kong's Hang Seng index jumped 1.9 per cent to its highest level since the summer of 2011. Equity markets in China and Japan were closed for public holidays and will reopen on Friday.

3 more fiscal cliffs loom

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