Asian Markets React Positively to U.S. 'Fiscal Cliff' Deal

Asian stocks surged on Wednesday after U.S. President Barack Obama, the Senate and the House of Representatives approved a deal that has avoided the major part of the "fiscal cliff" that could throw the world's largest economy back into recession.


The Bill avoids tax hikes for most Americans and puts off automatic US$109 billion budget cuts for two months.


Hong Kong stocks were the biggest gainers in Asia, adding 2.89 percent, or 655.06 points, to 23,311.98, receiving an additional boost from positive Chinese manufacturing data.


Sydney gained 1.23 percent, or 57 points, to 4,705.9, and Seoul put on 1.71 percent, or 34.05 points, advancing to 2,031.10.


The deal would also raise taxes top earners pay on dividends, capital gains and inherited estates.


Slow Down Growth
While the pact will help the U.S. avoid a feared recession, it will hit economic growth and efforts to generate jobs, say economists.


"We are looking at growth of 1.7 per cent, somewhere around there," after around 2.0 percent GDP growth in 2012, notes Gregory Daco of IHS Global Insight.


Economists interviewed by the Agence-France Presse say that despite the deal on tax hikes, the looming political fight over short- and long-term spending reduction will continue to worry businesses, which could continue to hold off on investment and hiring as they did in 2012.


More Remains to Be Done
While the International Monetary Fund welcomes the action by the U.S. Congress, it says more remains to be done to put U.S. public finances back on a sustainable path without harming the still fragile recovery.


"A comprehensive plan that ensures both higher revenues and containment of entitlement spending over the medium term should be approved as soon as possible," says Gerry Rice, Director of External Relations at the International Monetary Fund (IMF). "In addition, it is crucial to raise the debt ceiling expeditiously and remove remaining uncertainties about the spending sequester and expiring appropriation bills."


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