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Markets in Europe have gained after a short-term deal to stave off the so-called US fiscal cliff was reached.
By mid morning, UK shares were up by 2%, with other European indexes up by a similar amount.
Failure to agree a deal would have triggered spending cuts and tax increases worth $ 600bn (£370bn).
There had been fears the measures would have derailed the modest recovery in the world’s biggest economy and perhaps even push it back into recession.
German stocks gained by 2%, while France’s Cac 40 was also 2% higher and Madrid’s stocks gained 2.6%.
The FTSE 100 index rose 118 points to 6,016 points, the first time it has been above the 6,000 level in 17 months.
Mining and banking shares gained by up to 5%, with Barclays among the biggest risers.
UK shares were also boosted by a survey of production and new orders in the manufacturing sector. ,
Activity in the sector was at a 15-month high in December, with an index reading of 51.4. A reading above the 50 level indicates expansion.
In the US, the lower chamber of Congress passed a deal backing a compromise that had already passed in the Senate, which raises taxes for the wealthy and delays spending cuts for two months.
The fiscal cliff measures – cutting spending and increasing taxes dramatically – came into effect automatically at midnight on Monday when George W Bush-era tax cuts expired.
The 31 December deadline triggered tax increases of about $ 536bn and spending cuts of $ 109bn from domestic and military programmes – which has now been averted.
Daniel Costello, a US economics commentator, said the real decisions had not been taken: “In the most immediate sense, they took their feet of the cliff, but once again they have taken the hard work and pushed it down the street.
“It’s a huge disappointment. The Republicans deeply wanted spending cuts. Their long-term goal is to finally start chipping away at some of the entitlement spending [on welfare payments] that is just getting out of control.
He said the tax rises brought in only affected 1% of the US population and benefit payments for the less well-off would spiral unless new agreements were struck: “Two-thirds of all federal spending comes from entitlement spending – that means when you wake up in the morning, two-thirds of the money is already spent. By 2020, that goes up to 90%.”
Shares worldwide had been hurt in November and December by fears that the US would not be able to reach any kind of agreement and would go off the cliff.
Analysts said the relief would not last.
Mike McCudden, head of derivatives at stockbroker Interactive Investor said: “There will no doubt be a few more twists and turns in the days ahead… but for now, investors have the concrete news they were hoping for.”
Joe Rundle, head of trading at ETX Capital, said: “Today’s bullish tone may continue as we head toward the weekend. but the euphoria will most certainly evaporate, as the deal voted through does not include raising the debt ceiling and longer-term budget cuts.
“It’s only a matter of time before market participants lose their buzz as US lawmakers will have to reconvene to address the remainder of unresolved issues.”
Earlier, Asian shares gained on the news of the deal.
In Hong Kong, shares rose 2.9%, also helped by more evidence that the Chinese economy was strengthening.
The US is also a key market for most of Asia’s export-dependent economies.