Asian stocks rose nearly 2 percent to hit a five-month high and the US dollar fell as both houses of the US Congress passed a bill aimed at ending the “fiscal cliff” crisis that threatened a US recession and roiled world financial markets.
European stock markets soared yesterday in opening trade, with London’s FTSE 100 index of top companies jumping 1.28 percent, Frankfurt’s DAX 30 gaining 1.01 percent, while in Paris the CAC 40 rallied 1.73 percent.
The bill’s passage through the US Congress allayed earlier concerns over complaints from a number of Republicans that spending cuts were still not adequately addressed.
The temporary reprieve that the deal offers the US economy also set up Wall Street for a strong start to trading, which also resumed yesterday.
Asian stock markets cheered the developments as a major risk for investors, namely a slump in the global economy, appeared to have receded for now.
“This is great news for global growth and explains why shares and other growth-related assets such as the Australian dollar are up strongly today,” AMP Capital strategist Shane Oliver said.
Australian shares rose to a 19-month high while the Australian dollar also showed gains.
The MSCI Asia Pacific (excluding Japan) index of stocks rose 1.9 percent. Hong Kong shares ended 2.89 percent higher yesterday as last month’s rally spilled over into the new year.
In South Korea, the KOSPI was up 1.6 percent led by a 3.6 percent jump for smartphone giant Samsung Electronics Co, while Singapore was the best-performing market in South East Asia, rising 1.2 percent.
“The index is riding high on the US’ fiscal deal. This upward momentum will last a couple of weeks, after which there will be a reality check due to the unresolved issue of the spending cuts and debt ceiling,” Samsung Securities analyst Cho Tae-hoon said.
Asian stocks outside Japan rose nearly 20 percent last year as a combination of improving economic data from China, easing worries about a eurozone blow-up and global central bank easing encouraged investors back into equity markets.
Sakthi Siva, Asia strategist for Credit Suisse, said in a note to clients that this year could see similar returns for Asian equities, given a solution to the fiscal crisis.
“As we move into 2013 we retain our bullish bias and our theme is whether markets could catch up with earnings,” Siva said, adding that markets in China and India could offer the greatest upside given the mismatch between index levels and earnings expectations.
In foreign exchange markets, the euro rose against the US dollar to US$1.3261.
The safe-haven US dollar edged lower, falling 0.4 percent against a basket of major currencies.
The Japanese yen continued its slide as investors wagered that the Bank of Japan would have to implement increasingly aggressive easing measures to support the economy and satisfy the new government.
The yen fell to ￥87.17 against the US dollar, its weakest level since July 2010.
The Japanese currency also dropped to depths not seen in more than four years against the Australian and New Zealand dollars.