New York - U.S. stock index futures surged Wednesday, indicating Wall Street was set to rally on the first trading day of 2013, after U.S. lawmakers agreed a deal to avoid massive tax hikes and spending cuts that had threatened to hurt economic growth.
The House of Representatives voted for a bill late on Tuesday that will raise taxes on wealthy individuals and families and preserve certain benefits.
The vote averted immediate austerity measures, like tax hikes for almost all U.S. households, although it didn't resolve other political showdowns on the budget due in coming months. Spending cuts of $109 billion in military and domestic programs were only delayed for two months.
“We are looking at a sharply higher open on Wall Street. The deal certainly brightens the prospects for economic growth, and traditionally speaking, the first week of the year generally sets the stage for the rest of the year for equities - so this is positive,” said Peter Cardillo, chief market analyst for Rockwell Global Capital in New York.
“There is a lot of euphoria out there and I expect, for the next day or two, the market will continue on the upside. We will see money re-entering the market.”
S&P 500 futures rose 25 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures gained 168 points, and Nasdaq 100 futures added 52.25 points.
European shares rallied across the board at the start of the new year. Asian shares also rallied, with the MSCI Asia Pacific ex-Japan index of stocks gaining 2.1 percent. Japanese markets were closed on Wednesday for a holiday.
On the macroeconomic front, the Institute for Supply Management's manufacturing sector survey will be released at 10:00 a.m. ET (1500 GMT). A Reuters survey forecasts the main index at 50.3 compared with 49.5 in November.
Also at 10:00 a.m., November construction spending data will be released. A Reuters survey forecasts a 0.6 percent rise in construction spending, versus 1.4 percent in the prior month.
U.S. stocks ended 2012 with their strongest day in more than a month, putting the S&P 500 up 13.4 percent for the year, compared with a flat performance in 2011.
The Dow Jones industrial average gained 166.03 points, or 1.28 percent, to end at 13,104.14. The Standard & Poor's 500 Index gained 23.76 points, or 1.69 percent, to finish at 1,426.19. The Nasdaq Composite Index gained 59.20 points, or 2.00 percent, to close at 3,019.51.
The Dow advanced 7.3 percent in 2012 and the Nasdaq climbed 15.9 percent. -Reuters