NEW YORK (Reuters) - Global stocks surged and commodities rallied on Wednesday after U.S. legislators struck a deal to halt a round of automatic fiscal tightening that threatened to push the world's largest economy into recession.
The deal reached on Tuesday to avert the "fiscal cliff" put off the immediate pain of income tax hikes for almost all U.S. households but did nothing to resolve other political impasses on the budget that loom in coming months, including the debt ceiling.
Spending cuts of $109 billion in military and domestic programs were only delayed for two months, and a fight over the limit for U.S. government debt also looms.
"There was the fiscal cliff euphoria, but the markets are a little overdone and people realize you still have the debt ceiling battle, social security taxes going up and dealing with spending sequestration and budget cuts," said Mark Waggoner, president at Excel Futures Inc.
The deal boosted investors' appetite for riskier assets and depressed the U.S. dollar against major currencies. Brent crude oil hit an 11-week high of nearly $113 per barrel and gold prices rose more than 1 percent to a two-week high.
Brent February crude rose $1.36, or 1.22 percent, to settle at $112.47 a barrel, having traded from $111.27 to $112.90. U.S. crude for February delivery rose $1.30 to settle at $93.12 a barrel.
The vote in Congress removed a major uncertainty hanging over markets, but some analysts cautioned that the optimism could fade if U.S. economic data later this week, including the December payroll report, disappoints.
U.S. manufacturing expanded slightly in December, bouncing back from an unexpected contraction the prior month, according to an industry report released on Wednesday.
The Dow Jones industrial average was up 237.95 points, or 1.82 percent, at 13,342.09. The Standard & Poor's 500 Index was up 27.91 points, or 1.96 percent, at 1,454.10. The Nasdaq Composite Index was up 79.04 points, or 2.62 percent, at 3,098.55.
The MSCI all-country world equity index rose 1.74 percent. The pan-European FTSEurofirst 300 closed 2.1 percent higher at 1157.40.
In currency markets, the euro was at $1.3173 after reaching a two-week high earlier in the session. The U.S. dollar rose 0.1 percent against a basket of major currencies.
It was a similar story for government debt, with prices of higher-yielding Spanish and Italian bonds up and the German equivalent, usually favoured by risk-averse investors, falling. The Bund future was on track for its biggest daily fall since September, down 1.62 points to 144.02.
The benchmark 10-year U.S. Treasury note was down 23/32 in price to yield 1.8371 percent.
Venezuela's U.S. dollar-denominated sovereign bonds rallied across the yield curve on Wednesday in a sign of increased appetite for risk. The benchmark 2027 Global bond gained 1.536 points in price to bid 99.79, yielding 9.273.
The Thomson Reuters-Jefferies CRB index of 19 commodities rose 0.85 percent, with metals dominating gains.
(Additional reporting by Daniel Bases; Editing by Dan Grebler and Nick Zieminski)