AUSTRALIAN stocks are set to rise today after the US avoided falling over its fiscal cliff -- at least for now -- and iron ore prices unexpectedly ended the year in positive territory.
US tax and spending cuts due to start on January 1 were delayed by two months after a deal between Barack Obama and congressional Republicans in Washington was reached in the final hours of 2012.
The move is expected to see the Australian sharemarket, which lost ground on Monday, make a positive start to 2013.
"While the reaching of a deal is not unexpected, the sharemarket will take that favourably when we resume trading, and we'll have a positive day as a result," said Chris Stott, chief investment officer at Wilson Asset Management.
"This is going to avert a lot of fears that some investors had and create a lot of positive sentiment moving into the new year, so I expect the sharemarket to continue its positive trend over the next few months."
The final US stock trading day of the year closed before the deal was reached, but it still finished strongly as it seemed likely the $US600bn ($577bn) of tax increases and spending cuts due to come into play was reached at the start of 2013 could be headed off.
The Dow Jones index closed 1.3 per cent, or 166 points, higher at 13,104.
The Standard & Poor's 500-stock index jumped 23.77 points, or 1.7 per cent, to 1426.19, as Wall Street enjoyed its biggest one-day rally since mid-November.
That lead alone probably would have been enough to boost the Australian market, which fell 0.5 per cent on Monday to 4645.
Australian sharemarket futures did not trade during New York hours on New Year's Eve, meaning markets will only this morning get the chance to start pricing in both the US developments and a 4 per cent rise in the iron ore price to $US144.90 per tonne.
Investors yesterday were relieved that the US economy did not go over the cliff, rather than overjoyed that a solution was closer.
John Abernethy, chief investment officer at fund manager Clime, said the discussions had taken way too long for comfort.
While compromise was likely, the US Republicans could not accept that taxing of high income earners was the main issue, rather than spending, he said.
"In any case, the Aussie market will drift higher, with the big test being the (Australian earnings) reports in February," Mr Abernethy said.
"I suspect some share prices of leading shares will be tested by fairly flat earnings but the broader market appears OK."
Sirius Fund Management managing director Keiran Kelly said he viewed the inability to get a solid deal done and the lack of leadership in the US as negative for Australian shares.
"It shows there's a profound problem at the core of American democracy, which for us as professional investors and our clients is much more worrying longer term," Mr Kelly said.
"Forget China, this is the world's most important economy and its most important stockmarket and its most important capital-raising mechanism that is now essentially existing in a country that is ungoverned -- it's very, very disappointing."
