European shares jump on U.S. budget deal

Tricia Wright
Reuters Middle East

* FTSEurofirst 300 up 1.3 pct, highest since May 2011

* Miners top gainers, copper up strongly

* Euro STOXX 50 volatility index drops 14 pct

LONDON, Jan 2 (Reuters) - European shares rallied across the

board at the start of the new year after U.S. lawmakers approved

a deal to prevent a fiscal crunch that had threatened growth in

the world's largest economy.

The Republican-controlled House of Representatives late on

Tuesday finally approved a bill that will raise taxes on top

U.S. earners, fulfilling President Barack Obama's re-election

promise and avoiding $600 billion in broader-based tax hikes and

spending cuts.

Asian shares rose strongly overnight on the news, while

copper prices climbed 2.2 percent, with robust

manufacturing data from top metals consumer China also aiding

the mood.

The FTSEurofirst 300 rose 1.3 percent at 1,148.97

by 0914 GMT, hitting levels last seen in May 2011.

Uncertainty as to whether U.S. politicians would manage to

hammer out a deal to avoid the fiscal cliff had cast a shadow

over market sentiment in the last weeks of 2012.

"The U.S. news allows some apprehension to be reduced and

although we have been confident of a deal being announced last

minute we can now see more aggressive buying in today's

session," Atif Latif, director of trading at Guardian

Stockbrokers, said.

The Euro STOXX 50 Volatility Index, or VSTOXX,

Europe's widely-used measure of stock market risk aversion,

dropped 14 percent on Wednesday following the U.S. budget deal.

The VSTOXX - which is used to measure the cost of protecting

stock holdings against corrections - tumbled to 18.45.

China's official manufacturing purchasing managers' index

held steady in December at 50.6, matching November's seven-month

high and adding to evidence of a move back toward growth in the

world's biggest metals consumer.

That helped basic resources stocks put in a solid

showing on Wednesday, the top performing sector with a 3.1

percent advance.

The euro zone's blue-chip Euro STOXX 50 firmed

49.54 points, or 1.9 percent, to 2,685.47.

The Euro STOXX 50 climbed 13.8 percent in 2012, while the

FTSEurofirst 300 rose 13.2 percent, boosted by bold measures

from central banks to resolve Europe's debt crisis and revive

global growth.

Among technical strategists there was optimism as to how

2013 would proceed.

"We've started the year on a positive note, and it does look

like the market is pushing on towards 2,722," Barclays Capital's

chief European technical strategist Phil Roberts said, referring

to the Euro STOXX 50.

The 2,722 level in technical analysis is an equality target

- the point at which the rally from the low in 2011 to the high

in March 2012 is replicated off the low in June 2012.

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