* FTSEurofirst 300 up 1.9 pct
* Index at highest level since May 2011
* Miners top gainers, copper up strongly
* Euro STOXX 50 volatility index drops 17 pct
By Tricia Wright
LONDON, Jan 2 (Reuters) - European shares saw a broad-based
rally on Wednesday, kicking off the new year with strong gains
after U.S. lawmakers approved a deal to avoid a fiscal crunch
that had threatened growth in the world's largest economy.
The Republican-controlled House of Representatives late on
Tuesday finally approved a bill that will raise taxes on top
U.S. earners, fulfilling President Barack Obama's re-election
promise and avoiding $600 billion in broader-based tax hikes and
The FTSEurofirst 300 was up 1.9 percent at 1,155.40
by 1152 GMT, hitting levels last seen in May 2011.
U.S. stock index futures pointed to a sharply higher open on
Wall Street, with futures for the S&P 500 up 1.5 percent.
Dow Jones futures were up 1.3 percent, and Nasdaq 100
futures rose 1.6 percent.
Uncertainty as to whether U.S. politicians would manage to
hammer out a deal to avoid the "fiscal cliff" dominated market
sentiment in the last weeks of 2012.
While markets welcomed the deal, there was a degree of
pessimism among strategists who highlighted that it did nothing
to resolve further political showdowns on the budget in coming
In addition, they underlined that Wednesday's gains should
be viewed in the context of holiday-thinned trading volume -
which exaggerates market movements - with the FTSEurofirst 300
having traded just 46 percent of its 90-day daily average.
"This is a kind of Happy New Year relief rally -
everything's not going to crumble just yet," said Frances
Hudson, global thematic strategist at Standard Life Investments,
which manages 163 billion pounds ($265 billion).
"But I think when people are back at their desks and have
time to do more detailed analysis, perhaps the market will
continue with jittery 'risk-on/risk-off' (movements)."
Keith Bowman, equity analyst at Hargreaves Lansdown,
concurred: "I think the broad expectation was that a deal would
be done, so it doesn't come as a great surprise - but it did go
down to the wire so I think there's an element of a sigh of
relief being breathed by investors today."
"Having said that, there are still hurdles to overcome ...
The negotiations ahead will come back into focus and that may
well limit the rally."
Miners spearheaded the advance, the top-performing
sector with a 4.5 percent rise as copper prices climbed
2.4 percent. Robust manufacturing data from top metals consumer
China also aided the mood.
China's official manufacturing purchasing managers' index
held steady in December at 50.6, matching November's seven-month
high and adding to evidence of a move back toward growth.
The Euro STOXX 50 Volatility Index, or VSTOXX,
Europe's widely-used measure of stock market risk aversion,
dropped 17 percent on Wednesday following the U.S. budget deal.
The VSTOXX - which is used to measure the cost of protecting
stock holdings against corrections - tumbled to 17.72.