GLOBAL stock markets have rallied after a short-term deal to stave off the US "fiscal cliff" was reached.
In New York, the Dow Jones closed up 2.4 per cent, while European shares were up about 2 per cent for the day.
Failure to agree to a deal would have triggered spending cuts and tax rises worth $US600billion ($F1.06trillion), expected to throw the US back into recession.
However, the deal has only postponed by two months negotiations over spending cuts and the government debt ceiling.
Just before the New Year, the US Treasury Secretary Tim Geithner indicated that the federal government would run up against the debt ceiling — a legal cap on its total borrowing set by Congress — by the end of February.
The fiscal cliff deal does not include an increase in the debt ceiling.
It also postpones by two months steep automatic spending cuts to federal government spending on things like defence and education.
International Monetary Fund spokesman Gerry Rice said in a statement that "more remains to be done", although he expressed relief that at least the tax hikes, which had threatened to send the US economy into recession, had been averted.