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Shares rally as cliff hopes cheer investors

by Chris Marshall on Dec 18, 2012 at 16:55

Shares rally as cliff hopes cheer investors

European shares lurched higher amid signs that US politicians may finally have broken free from their deadlock, to progress towards a deal to avert a ‘fiscal cliff’.

The FTSE 100 climbed 0.5%, or 31 points, to 5,943 and the Eurofirst 100 rose by 0.4% to 684 on the heels of further gains on Wall Street where the Standard & Poor’s 500 index gained 12 points or 0.8% to 1,442, its highest level in almost two months.

President Barack Obama and Republican House Speaker John Boehner met at the White House on Monday, raising expectations that Washington will be able to head off steep tax hikes and spending cuts. According to reports, Obama has offered a concession over tax hikes on the wealthy which would mean tax increases start for Americans earning $400,000 rather than $250,000.

The oil price was boosted by the news, with Brent Crude futures 0.6% higher at $108. Major currencies were little moved though, with the euro – a gauge of risk appetite – slightly higher at $1.3222.

Investors were also continuing to enjoy the fruits of Shinzo Abe’s victory in Japan’s lower house of parliament at the weekend, with growing hopes that the nation’s central bank will add to its monetary stimulus programme for the fifth time this year.

Incoming prime minister Abe used his victory to repeat his calls for the bank to act, with economists pencilling in stimulus of around JPY10 trillion from Thursday’s meeting. ‘While political pressure is strong, it is not the only factor driving the BoJ to contemplate further easing’, said Izumi Devalier of HSBC, noting Japan’s economic weakness, deflationary pressures and the tough conditions faced by companies.

Japan's Nikkei 225 rose by nearly 1%, with gains on most major Asian stock markets.  

G4S looks more secure

In London, a mixed collection of mining stocks, including Rio Tinto (RIO.L), Vedanta Resources (VED.L) and Anglo American (AAL.L) gained between 2% and 2.8% to sit at the top of the FTSE 100.

Barclays (BARC.L) gained 3.4p or 1.3% to 260.3p on news that Sheikh Mansour, owner of Manchester City football club, had increased his stake in the bank to 7%.

G4S (GFS.L) rose by 2.7% to 257p after the Financial Times reported that the security company is set to win a contract to implement the government's changes to child benefit.

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