The fiscal cliff involves US$600 billion in automatic tax hikes and spending cuts effective in early 2013 if US lawmakers fail to agree on reducing the budget deficit.
US fiscal cliff deal sets off bull charge in Hong Kong, US stock markets
Mainland insurers and brokerages lead rally as Hang Seng Index gains 2.9pc on the first trading day of the new year; US stocks rise 2pc
Hong Kong stocks kicked off the new year with a 19-month high in heavy trading and could open even higher today if they track the overnight US market that rallied after the Congress approved a deal to avoid a "fiscal cliff".
The Hang Seng Index rose 2.89 per cent on its first trading day of the year to finish at 23,311.98 points, breaching the 23,000 level for the first time since June 2011. Turnover was HK$82.44 billion, 32 per cent more than the 30-day average.
Yesterday's gain was the index's best start to a new year since 2009, when it rose 4.55 per cent.
"The removal of the overhang of the fiscal cliff boosted investors' risk appetite, especially for those growth-sensitive shares," said Baring Asset Management fund manager Khiem Do.
"New funds are chasing shares that have been underweight last year, such as Chinese banks, insurers and brokerages," Do said.
In a 257-167 vote, the US Congress backed a deal to avert a combination of tax increases and spending cuts that had threatened to dampen the economy.
The US markets welcomed the deal, with all 10 groups in the S&P 500 and all 30 stocks in the Dow Jones Industrial Average rising. Both indices jumped about 2 per cent in early trading.
The rally also followed new evidence that manufacturing is steadying in the US. The Institute for Supply Management said its index of manufacturing activity rose to 50.7 in December from 49.5 in November. A reading above 50 signals expansion.
The Stoxx Europe 600 Index, meanwhile, rose 2 per cent to its highest since February 2011.
In Hong Kong, insurers and brokerages led the pack after the mainland securities regulator said it would allow asset management units and brokerages to set up mutual funds.
Industrial and Commercial Bank of China rose 3.64 per cent to finish at HK$5.70 while Construction Bank of China added 3.38 per cent to HK$6.43, Ping An Insurance gained 5.16 per cent to HK$68.25 and China Life Insurance climbed 6.72 per cent to HK$27.
Insurers and brokers would continue to be chased by funds as they were the "proxy of China's A shares", said Ben Kwong Man-bun, the head of research at KGI Asia.
Some growth-sensitive companies, such as mainland sportswear firms and metal producers, which have been the biggest laggards, were also among the biggest gainers.
Sportswear makers Li Ning and Anta Sports Products, which last year fell 18.3 and 25.7 per cent respectively, soared 11.9 per cent and 8.02 per cent yesterday.
Market heavyweight HSBC rose 2.34 per cent to HK$83.20.
Citing a traditional "January effect" for cyclical shares, which normally outperform the market at the beginning of the year, Do said mainland financial institutions and materials suppliers had the best chance to outperform in at least the first quarter in view of a possible rerating.
Additional reporting by Bloomberg