World markets have soared after a tense New Year break, relieved after U.S. politicians agreed a last-minute deal to avert massive tax hikes and pull their nation back from the fiscal cliff.

Congress voted overnight on a stop-gap agreement to put on hold a massive package of tax hikes and spending cuts that had
threatened to unleash economic and political turmoil and perhaps drive America back into recession.

The deal came just as world markets were opening and triggered a rally that sent European and Asian stocks up sharply. When Wall
Street got back to work the main Dow Jones, Nasdaq and SP indexes jumped up by two per cent.

The hard-fought agreement, a political victory for President Barack Obama’s White House, raised taxes on the very rich and delayed the threat of $US109 billion in automatic spending cuts for two months.

It may prove a temporary respite. The Democratic administration and the Republican-controlled House of Representatives could still clash on raising the government debt ceiling and on public spending cuts.

But the immediate danger of the ‘cliff’ – an artificial budget deadline previously engineered by Congress in order to force itself to reach a deal – was averted.

Obama resumed his interrupted Hawaiian holiday after the bill was passed.

The deal’s fate had hung in the balance for hours as House conservatives threatened the compromise by seeking to add spending reductions to a version passed by the Senate in the early hours of 2013.

In the end, the House voted 257 votes to 167 to pass the original bill with Democrats joining a smaller band of Republicans to pass
the legislation after a fiercely contested and unusual session on New Year’s Day.

Obama, who campaigned for re-election on a platform of building a more equitable economic system, declared the deal was a promise kept.

‘I will sign a law that raises taxes on the wealthiest two per cent of Americans while preventing a middle class tax hike that could have sent the economy back into recession,’ Obama told reporters after the vote.

Had the deal fallen apart, all Americans would have been hit by tax increases and spending cuts would have kicked in across government – a combined $US500 billion shock that could have rocked the fragile recovery.

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