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Stocks, Commodities Rally; Dollar Drops on Budget Deal

January 2, 2013
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By Michael Shanahan, Copyright 2013 Bloomberg.
 

Stocks and commodities surged after U.S. lawmakers passed a bill averting spending cuts and tax increases threatening a recovery in the world’s biggest economy. The dollar weakened as yields on Treasury 10-year notes rose the most since October.

The Standard & Poor’s 500 Index advanced 1.2 percent and the Stoxx Europe 600 Index jumped 2.1 percent at 9:31 a.m. in New York, the highest since March 2011, as equities added to last year’s 13 percent global rally. Copper gained more than 3 percent and oil rose almost 2 percent. The Dollar Index fell as much as 0.6 percent, its biggest decline since Nov. 23. Treasury 10-year yields climbed eight basis points.

President Barack Obama said he will sign into law the bill undoing tax increases for more than 99 percent of households as Republicans vowed to fight him for spending cuts in exchange for raising the debt ceiling. Manufacturing in the U.S. probably expanded in December, showing the industry is stabilizing after reaching a three-year low, economists said before a report.

"It’s an immediate positive and a short-term relief that they got the deal through," Binay Chandgothia, a Hong Kong based portfolio manager at Principal Global Investors, which oversees more than $250 billion in assets worldwide, said in a phone interview. "The sustainability will depend on what comes out ultimately and how things shape up with the debt ceiling debate. There will now be protracted political negotiations."

Bipartisan Vote

The House of Representatives’ 257-167 bipartisan vote breaks a yearlong impasse over how to head off $600 billion in tax increases and spending cuts that would have started taking effect yesterday.

The S&P 500 jumped 1.7 percent on Dec. 31, the biggest end- of-year gain since 1974, in anticipation of a budget deal. The Institute for Supply Management’s factory index rose to 50.4 in December from the previous month’s 49.5, which was the lowest since July 2009, according to the median forecast of 68 economists surveyed by Bloomberg before a report at 10 a.m. in New York. A reading of 50 marks the dividing line between expansion and contraction.

The U.S. measure isn’t the grand bargain on deficit reduction lawmakers wanted when they created the tax-and- spending deadlines over the past three years. While avoiding most of the immediate pain, it is only one step toward curbing the federal deficit -- an issue that will return with a February fight over raising the $16.4 trillion debt limit.

’Fair Share’

"The deficit needs to be reduced in a way that’s balanced," Obama said at the White House. He said he wants top earners and corporations to pay even more and that Congress must raise the debt ceiling. "Everyone pays their fair share. Everyone does their part," he said.

All 19 industry groups in the Stoxx 600 advanced during the year’s first trading session. The European benchmark jumped 14 percent last year, the biggest increase since 2009. Rio Tinto Group led a rally in mining companies today, rising 5.8 percent. Porsche SE and Volkswagen AG climbed more than 4.3 percent to pace gains in automakers.

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