FTSE 6,000 points euphoria masks big worries about US

Jan 3, 2013

US 'fiscal cliff' deal provides no basis for a meaningful improvement in debt ratios, says Moody's

THE FTSE-100 share index yesterday broke through the 6,000 points barrier for the first time since July 2011. The index closed at 6,027, a rise of 2.2 per cent.

As The Times reports, the psychologically important breakthrough was reached in the wave of relief triggered by America's last-minute 'fiscal cliff' deal.

In Europe the German Dax closed 2.2 per cent up and the French CAC rose 2.6 per cent. Wall Street stocks soared, with the Dow Jones industrial average closing on 13,412.55 points, up 2.35 per cent, after its best day in a year.

The price of gold rose almost $13 an ounce to $1,688.

But amid the early euphoria there were warnings that US budget problems were not settled and the glee could be short-lived. Spending cuts of $109 billion have only been pushed back to March and economists warned of the consequences of failing to meet Congress¹s next self-imposed deadline.

Chris Krueger, a political analyst at Guggenheim, said: "The next fiscal cliff is going to be more toxic and could end with an almost unthinkable conclusion: a technical default on the US debt."

Credit rating agency Moody's said that much more had to be done. It said that the deal "does not provide a basis for a meaningful improvement in the Government's debt ratios over the medium term".

The UK shares rally was helped by rising British factory activity, which climbed to a 15-month high in December.

But the 17-nation eurozone may have slid further into recession. Purchasing manager surveys show that the Republic of Ireland was the only member of the currency union to register growth in December.

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