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London - Britain's top share index smashed through the 6000 barrier on Wednesday as investors celebrated a U.S. budget deal averting tax hikes and spending cuts that risked pushing the world's largest economy into recession.

By 1143 GMT London's blue chip index rose 127.32 points, or 2.1 percent to 6,025.13, breaking above the 6000 level for the first time since July 2011, driven by big gains in miners and banks.

The gains echoed the New Year's Eve rally on Wall St, which was the biggest final-day gain in the S&P 500 since 1974.

The catalyst for Wednesday's rise was the approval by the U.S. House of Representatives of a bill raising taxes on top U.S. earners, fulfilling President Barack Obama's re-election promise and avoiding, at least in the short-term, the $600 billion “fiscal cliff”.

“It is good to start the new year off with a bang but there is still a lot of stuff to digest ... It will be interesting to see if these gains can be sustained,” Gerry Celaya, chief strategist at Red Tower Research, said.

Miners were the main outperformers on Wednesday. The sector was a major laggard in 2012, ending the year flat compared with a 5.8 percent rise for the wider FTSE 100.

Mining stocks were helped by positive PMI data out of China, the world's largest consumer of raw materials, which allayed fears of a slowdown in demand, while the UK manufacturing PMI also showed an unexpected rebound in factory activity.

Anglo American, which lost more than 20 percent in 2012, was one of the top early gainers, up 5 percent as some analysts tipped the firm for a turnaround in fortunes this year.

Wednesday's rally meant the FTSE 100 is up nearly 15 percent since June 2012 lows. Investors have been imbued with confidence as central banks across the globe have taken action to support the financial system and attempt to boost growth.

U.S. funds invested in European shares raked in a net $5 billion in 2012, reversing sharp outflows since the start of the euro zone debt crisis, as the European Central Bank's bold moves to defend the single currency reassured investors.

But while the U.S. fiscal deal boosted markets and averted immediate threats to the economy including tax hikes for almost all American households, it did nothing to resolve other political showdowns on the budget that loom in coming months.

“The U.S. economy is doing OK, the UK economy is holding up and the euro zone has not collapsed, therefore stock markets should go up a lot more. The problem is stock markets anticipate all this kind of stuff so we think the last six months of stock market exuberance has already priced in a lot of the good news,” Red Tower's Celaya said.

Analysts warned that while markets continue to show strength and indicate further upside, traders should be aware of the support levels which will need to be respected if the bulls are going to remain in control.

“The FTSE 100 will need to maintain the 6000 key level to then reach for 6150 where we may then see a significant barrier that could push the index back lower,” Sandy Jadeja, Chief Technical Analyst, City Index said in a note.

There were only three fallers on the FTSE 100 approaching midday, among them supermarkets WM Morrison and Sainsbury which lost 1.1 and 1.5 percent respectively on concerns about festive trading and the sector's defensive make-up.

“November and December saw poor sales growth. Kantar and various other sources suggest that trade through the festive season was difficult, with total industry sales growth negligible,” analysts at Oriel Securities write in a note.

Oriel cut its target price for Sainsbury to 300 pence as it thinks trading has become much tougher for the company since it posted interim results, while Jefferies cuts its target price for WM Morrison to 310 pence. -Reuters