London's blue-chip share index powered ahead on Wednesday amid relief that America had been spared a devastating package of spending cuts and tax rises.
The fiscal cliff agreement, which was sealed just hours before world markets were due to return from the New Year holiday, sent London's FTSE 100 Index smashing through the 6000 barrier for the first time since July 2011.
The top tier rallied 1.8% higher - up 109.3 points to 6007.1 - after politicians passed short-term measures to prevent the United States careering over the so-called fiscal cliff.
Markets across Europe also powered ahead, with Germany's Dax up 2% and the Cac 40 in France rising by more than 1.4%.
Economists feared that, without action by Congress, the tax increases and spending cuts that technically took effect on New Year's Day would cause unemployment to surge and send the US economy back into recession.
The fiscal cliff agreement triggered a rise of 1.5% in the FTSE 100 Index
In an unprecedented pre-dawn vote in the House of Representatives, the deal neutralised middle-class tax increases and delayed spending cuts for two months, while raising tax rates on incomes over 400,000 US dollars (£247,000) for individuals and 450,000 US dollars (£278,000) for couples.
The Bill's passage on a 257-167 vote was a triumph for President Barack Obama after his re-election in November on the back of a pledge to impose higher taxes on the wealthy. He said the measures were "just one step in the broader effort to strengthen the economy".
The London market has been in limbo in recent sessions as traders pondered the implications of America failing to reach a compromise to avoid the so-called fiscal cliff.
Cantor Index analyst David Buik said: "There was never any chance of there being anything worse than a fudged agreement on the proposed budget, including taxation increases for the better-off.
"The ramifications of no agreement were not worth considering. As it stands, the prevarication may have cost the US 0.5% of GDP for 2013. No agreement at all would have cost 4% of GDP."
Mining and banking stocks were up by as much as 5% as the deal averted the threat of a global slump caused by a new recession in the United States.
The US dollar also weakened against major currencies as traders reversed the recent flight to the traditional safe haven.
Mike McCudden, head of derivatives at stockbroker Interactive Investor, said: "The bottom line for many is that avoiding the fiscal cliff is essentially going to keep the US - and in turn many other nations - from toppling into recession.
"Traders are looking at screens awash with blue with Barclays leading the way, whilst the big resource stocks are also finding favour again on hopes that demand in the sector will now be maintained.
"Whether this is sufficient to see markets in 2013 shake off the ghosts of the past few years clearly remains to be seen, but it certainly feels like a good way to be starting the new year."
Last night Barack Obama welcomed the last minute deal, but warned he would not bow to a partisan Congress in the future.
"The one thing I think hopefully in the new year we'll focus on is seeing if we can put a package like this together with a little bit less drama, a little less brinksmanship, not scare the heck out of folks quite as much," he said.
Suggested For You
SUBSCRIBE AND FOLLOW
Get top stories and blog posts emailed to me each day. Newsletters may offer personalized content or advertisements.Learn more