Barack Obama election victory market boost short-lived

The euphoria surrounding president Barack Obama's re-election proved to be short-lived today as investors' focus switched to the approaching “fiscal cliff” in the US.

The FTSE 100 Index lost earlier gains to stand 1% lower as uncertainty settled in over how the president can avoid the so-called cliff - a raft of automatic tax increases and spending cuts that will almost certainly plunge the US back into recession.

Wall Street's Dow Jones Industrial Average, the Dax in Germany and Cac-40 in France all fell into the red as investors also turned their gaze to a crucial vote in the Greek parliament that could ultimately determine the country's future in the eurozone.

Colin Cieszynski, senior market analyst at CMC Markets, said: "It's a sign of just how busy this week is on the political scene that after 18 months of campaigning and billions of dollars being spent, the US election has been discounted so quickly by markets."

Mr Obama's victory over Republican rival Mitt Romney ended weeks of discussion over which candidate would succeed and the path the economic recovery might take as a result.

However, the split in the US Congress - with the Democrats holding the Senate majority and the Republicans holding the House of Representatives, means reaching a deal to avoid the cliff will be no mean feat for Mr Obama.

The prospect of more gridlock between Democrats and Republicans hit the US dollar, which fell against most major currencies including the pound and euro.

However, president Obama's win will reassure supporters of quantitative easing in the US - the emergency money-boosting measure Mr Romney vowed to bring to an end.

In Europe, Greek MPs must back a 13.5 billion euro (£10.8 billion) package of spending cuts and tax increases or the beleaguered country will face the prospect of losing access to its bailout lifeline.

This in turn could have significant implications for Greece - triggering a default on its mountain of debts and potentially forcing its exit from the single currency.

PA