Australian shares are tipped to make gains when markets reopen today after US politicians stitched up a last-minute deal to prevent savage tax increases and spending cuts that threatened the global economy.
While America technically went over the fiscal cliff after Congress failed to meet its self-imposed deadline of midnight on December 31 (1pm yesterday, WA time) to legislate for deficit reduction, it appears US politicians will avoid the worst of the economic shockwave.
In a compromise brokered between the White House and Senate Republicans, only individuals earning more than $US400,000 ($383,591) a year and families on $US450,000 will pay higher taxes, while $US110 billion in automatic spending cuts have been delayed for two months to allow for more talks on reducing the deficit.
With financial markets closed for New Year's Day, politicians gained an extra day to come up with an agreement.
If a deal had not been reached, the US economy could have been plunged back into recession because of the combined $US500 billion hit from higher taxes and spending cuts.
The Bill passed the Senate 89-8 and will go to the Republican-controlled House of Representatives, with a vote possible today.
Vice-President Joe Biden, who gave a thumbs up after negotiating the deal with top Senate Republican Mitch McConnell, has trooped to Capitol Hill to sell it to Democratic senators.
It is not clear whether it will win enough support and is expected to need bipartisan backing.
While relieved at news of the deal, Treasurer Wayne Swan echoed the International Monetary Fund's warnings that anything short of a "deep and wide reaching resolution" was not good enough.
The Australian and New Zealand sharemarkets will give the first indication of investor reaction to the compromise because they are the first major markets in the world to open after the new year break.
AMP Capital chief economist Shane Oliver said the deal should be enough to stop the US slipping back into recession and dragging down the world with it.
But he cautioned jitters could re-emerge in two months when Congress has to negotiate on raising the US debt ceiling, which it hit on New Year's Eve, and come up with permanent spending cuts.