US stock markets capped an extraordinary global New Year's rally Wednesday with a 2.5 percent jump on the S&P 500 index, all a reaction to Washington's eking out a last minute political compromise to avert the feared "fiscal cliff."
Market bulls roared in on the first trading day of 2013, pleased that warring US politicians finally agreed to legislation to put off sharp spending cuts and limit programmed tax increases that could have sent the world's largest economy back into recession.
The gains started in Sydney and Hong Kong and continued through India and Europe, with the mood sustained through the Americas, where the S&P finished with its best point gain since mid-December 2011, up 2.54 percent at 1,462.42.
The Dow surged 2.35 percent to 13,412.55, while the tech-heavy Nasdaq Composite topped both with a 3.07 percent gain to 3,112.26.
Earlier, London's benchmark FTSE 100 rose 2.20 percent to 6,027.37 points, Frankfurt's DAX 30 gained 2.19 percent to 7,778.78 points and the Paris CAC 40 jumped 2.55 percent to 3,733.93 points.
Markets in key peripheral eurozone countries posted even stronger gains, with Madrid's Ibex-35 index soaring by 3.43 percent and Milan's FTSE Mib gaining 3.81 percent.
In Asia, the Hong Kong market was the biggest riser, adding 2.89 percent, with sentiment also lifted by positive Chinese manufacturing data.
Sydney gained 1.23 percent, and Seoul rose 1.71 percent. Financial markets in Japan and mainland China were closed for a public holiday.
Among major markets, only Kuala Lumpur (-0.84 percent) and Zurich (-0.58 percent) were losers.
"The resolution of the fiscal cliff is clearly the big driver here, but critically we need to try and sustain this rally," said Mike McCudden, head of derivatives at the online broker Interactive Investor.
"It may have come at the last minute, but US lawmakers finally managed to find some common ground by voting through a package of policies designed to avoid the immediate fiscal cliff," noted ETX Capital trader Joe Rundle.
The dollar rebounded against the euro on the news, while US Treasury bond prices sank and yields rose. At 2200 GMT, the euro bought $1.3184, compared to $1.3193 late Monday.
Gold was only slightly higher at $1,686.10 an ounce in late US trade, while oil prices surged, with New York's WTI contract adding $1.30 to $93.12 a barrel, its highest close since September 18.
Late on Tuesday, the US House of Representatives passed a deal between the White House and Republicans to raise taxes on the rich but not for the rest of Americans, and delay for two months automatic budget cuts of $109 billion, lifting the clouds of immediate crisis.
"The fiscal cliff had dominated the agenda for both markets and US lawmakers in the run up to Christmas but with this now seemingly averted, equities are poised to break higher as the 2013 trading year gets underway," noted analyst Fawad Razaqzada at trading group GFT Markets.
Washington's budget and fiscal deadline haunted financial markets throughout December amid concerns that the lack of a compromise would drag the global economy into another lengthy downturn.