Global shares, oil slip on Fed stimulus nerves

LONDON (Reuters) - World shares edged lower and the dollar rose before U.S. jobs data on Friday which investors will watch even more closely than usual after Fed officials raised concerns about possible side effects of its stimulus program.

Minutes from the Federal Reserve's December policy meeting unsettled financial markets on Thursday after they showed some policymakers were worried about the program's longer-term impact.

Fed bond-buying has underpinned appetite for risk and the comments reopened debate on how much longer the central bank will keep stimulating the U.S. economy, unnerving investors before the U.S. employment figures.

European shares echoed their Asian peers to edge lower. But following a sharp jump on Wednesday after the United States edged back from the "fiscal cliff" budget crisis, they were on track for weekly gains of almost 2.7 percent.

Tentative signs that the euro zone economy may have passed the worst of its downturn also helped to restrict the moves.

Markit's Euro zone Composite PMI, which gauges business activity across thousands of the region's companies, rose in December to 47.2 from 46.5 in November - below the 50 line which divides growth from contraction but at its highest level since March last year.

"The surveys at least bring some substance to the belief that the worst is over and that a return to growth is in sight for the region in 2013," said Chris Williamson, chief economist at Markit.

London's FTSE 100 <.ftse>, Paris's CAC-40 <.fchi> and Frankfurt's DAX <.gdaxi> were down 0.1-0.5 percent by mid-morning, while the MSCI index of world shares was just over 0.2 percent lower at 345.85.

Wall Street was expected to open slightly higher though, with S&P 500 futures up 0.1 percent and contracts for the Dow Jones and the Nasdaq 100 up 0.2 percent.

U.S. stocks will largely depend on the non-farm payrolls report due at 8:30 a.m. ET and any clues it gives on the health of the U.S. and global economies.

Analysts polled by Reuters expect a 150,000 rise in jobs, with unemployment holding steady at 7.7 percent. However, after a better-than-expected ADP employment report on Thursday, many may now be betting on an above-consensus jobs number.

"The Fed has made it clear that it will keep policy loose until unemployment drops to 6.5 percent or below, so strong jobs data will undoubtedly raise expectations of a more hawkish Fed," analysts at Tradition brokerage said in a note.

CORE WEAKNESS

The Fed's concerns about the longer-term impact of its policies gave fresh momentum to the recent slide by low-risk bonds including U.S. and German debt.

Bund futures slipped almost half a point to 143.12, having already fallen steeply from last week's close of 145.64.

Benchmark U.S. Treasury yields continued their climb, hitting an eight-month high of 1.96 percent, while in Asia, 10-year Japanese government bond yields touched a 3-1/2-month high of 0.83 percent.

In the currency market, the dollar hit its highest level against the yen since July 2010 at 87.835 while the euro fell to a three-week low of $1.3006. The dollar <.dxy> also touched a six-week high against a basket of currencies.

"We have seen quite a broad-based dollar rally after the minutes which has ignited a fresh debate about how much liquidity the Fed is going to pump into the economy," said Daragh Maher, FX strategist at HSBC.

The yen has fallen in recent weeks as investors bet the new government will push the Bank of Japan to weaken the currency by implementing aggressive economic stimulus.

"Breaking through 88 in dollar/yen is a significant move. It was a target for a number of people in the market and the question is now whether we have a mindset of taking profit or we look to extend," added Maher.

The dollar's recent climb makes dollar-based assets more expensive for non-dollar investors and this hit precious metals and oil.

Brent crude shed 0.6 percent to $111.47 a barrel while gold fell 1 percent to $1,645, dragging silver down more than 2 percent to $29.48.

(Additional reporting by William James and Anooja Debnath; editing by David Stamp)

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Central African Republic rebels halt advance, agree to peace talks

DAMARA, Central African Republic (Reuters) - Rebels in Central African Republic said they had halted their advance on the capital on Wednesday and agreed to start peace talks, averting a clash with regionally backed troops.

The Seleka rebels had pushed to within striking distance of Bangui after a three-week onslaught and threatened to oust President Francois Bozize, accusing him of reneging on a previous peace deal and cracking down on dissidents.

Their announcement on Wednesday gave the leader only a limited reprieve as the fighters told Reuters they might insist on his removal in the negotiations.

"I have asked our forces not to move their positions starting today because we want to enter talks in (Gabon's capital) Libreville for a political solution," said Seleka spokesman Eric Massi, speaking by telephone from Paris.

"I am in discussion with our partners to come up with proposals to end the crisis, but one solution could be a political transition that excludes Bozize," he said.

Bozize on Wednesday sacked his Army Chief of Staff and took over the defense minister's role from his son, Jean Francis Bozize, according to a decree read on national radio, a day after publicly criticizing the military for failing to repel the rebels.

The advance by Seleka, an alliance of mostly northeastern rebel groups, was the latest in a series of revolts in a country at the heart of one of Africa's most turbulent regions - and the most serious since the Chad-backed insurgency that swept Bozize to power in 2003.

Diplomatic sources have said talks organized by central African regional bloc ECCAS could start on January 10. The United States, the European Union and France have called on both sides to negotiate and spare civilians.

Central African Republic is one of the least developed countries in the world despite its deposits of gold, diamonds and other minerals. French nuclear energy group Areva mines the country's Bakouma uranium deposit - France's biggest commercial interest in its former colony.

RELIEF IN BANGUI

News of the rebel halt eased tension in Bangui, where residents had been stockpiling food and water and staying indoors after dark.

"They say they are no longer going to attack Bangui, and that's great news for us," said Jaqueline Loza in the crumbling riverside city.

ECCAS members Chad, Congo Republic, Gabon and Cameroon have sent hundreds of soldiers to reinforce CAR's army after a string of rebel victories since early December.

Gabonese General Jean Felix Akaga, commander of the regional force, said his troops were defending the town of Damara, 75 km (45 miles) north of Bangui and close to the rebel front.

"Damara is a red line not to be crossed ... Damara is in our control and Bangui is secure," he told Reuters. "If the rebellion decides to approach Damara, they know they will encounter a force that will react."

Soldiers armed with Kalashnikovs, rocket propelled grenade launchers and truck-mounted machineguns had taken up positions across the town, which was otherwise nearly-abandoned.

Some of the fighters wore turbans that covered their faces and had charms strung around their necks and arms meant to protect them against enemy bullets.

Chad's President Idriss Deby, one of Bozize's closest allies, had warned the rebels the regional force would confront them if they approached the town.

Chad provided training and equipment to the rebellion that brought Bozize to power by ousting then-president Ange Felix Patasse, who Chad accused of supporting Chadian dissidents.

Chad is also keen to keep a lid on instability in the territory close to its main oil export pipeline and has stepped in to defend Bozize against insurgents in the past.

A CAR government minister told Reuters the foreign troop presence strengthened Bozize's bargaining position ahead of the Libreville peace talks.

"The rebels are now in a position of weakness," the minister said, asking not to be named. "They should therefore stop imposing conditions like the departure of the president."

Central African Republic is one of a number of countries in the region where U.S. Special Forces are helping local soldiers track down the Lord's Resistance Army, a rebel group which has killed thousands of civilians across four nations.

France has a 600-strong force in CAR to defend about 1,200 of its citizens who live there.

Paris used air strikes to defend Bozize against a rebellion in 2006. But French President Francois Hollande turned down a request for more help, saying the days of intervening in other countries' affairs were over.

(Additional reporting by Paul-Marin Ngoupana in Bangui and Jon Herskovitz in Johannesburg; Writing by Richard Valdmanis; Editing by Andrew Heavens and Janet Lawrence)

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Jennie Garth Wants to Date a Man with 'Positive Energy'

01/02/2013 at 07:10 PM EST

When it comes to her current love life, Jennie Garth has a new mantra.

"I'm learning to date again," the actress, who split from husband Peter Facinelli in March 2012, tells Health in its January issue, "[and] looks aren't important to me anymore. ... I like positive energy."

The actress, who dropped 30 lbs. last year, plans to keep her health a priority in 2013.

"Every day, I just renew my healthy choices," she says. "I feel really good about myself now, and I don't want to do anything to change that."

That means avoiding trendy diets or weight-loss gimmicks.

"My biggest regret is putting my body through fad diets: Atkins, cleanses, the hCG diet," Garth, 40, says. "I lost like 18 lbs., but it came right back. The worst was fasting with colonics for three or four days. It was the most horrifying experience ever."

In addition to her body, Garth says she's trying to maintain a positive outlook, even when times are tough.

"When I'm in excruciating pain, like with what I've been through with my breakup and that grief and loss that's just immobilizing, it helps to remember that it only lasts for 13 to 15 minutes, max," she tells Health. "And then it's over."

"Your mind is ready to go to something else," Garth continues. "You might come back to it, but it helps to just know that that pain is not going to last forever."

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Flu? Malaria? Disease forecasters look to the sky

NEW YORK (AP) — Only a 10 percent chance of showers today, but a 70 percent chance of flu next month.

That's the kind of forecasting health scientists are trying to move toward, as they increasingly include weather data in their attempts to predict disease outbreaks.

In one recent study, two scientists reported they could predict — more than seven weeks in advance — when flu season was going to peak in New York City. Theirs was just the latest in a growing wave of computer models that factor in rainfall, temperature or other weather conditions to forecast disease.

Health officials are excited by this kind of work and the idea that it could be used to fine-tune vaccination campaigns or other disease prevention efforts.

At the same time, experts note that outbreaks are influenced as much, or more, by human behavior and other factors as by the weather. Some argue weather-based outbreak predictions still have a long way to go. And when government health officials warned in early December that flu season seemed to be off to an early start, they said there was no evidence it was driven by the weather.

This disease-forecasting concept is not new: Scientists have been working on mathematical models to predict outbreaks for decades and have long factored in the weather. They have known, for example, that temperature and rainfall affect the breeding of mosquitoes that carry malaria, West Nile virus and other dangerous diseases.

Recent improvements in weather-tracking have helped, including satellite technology and more sophisticated computer data processing.

As a result, "in the last five years or so, there's been quite an improvement and acceleration" in weather-focused disease modeling, said Ira Longini, a University of Florida biostatistician who's worked on outbreak prediction projects.

Some models have been labeled successes.

In the United States, researchers at Johns Hopkins University and the University of New Mexico tried to predict outbreaks of hantavirus in the late 1990s. They used rain and snow data and other information to study patterns of plant growth that attract rodents. People catch the disease from the droppings of infected rodents.

"We predicted what would happen later that year," said Gregory Glass, a Johns Hopkins researcher who worked on the project.

More recently, in east Africa, satellites have been used to predict rainfall by measuring sea-surface temperatures and cloud density. That's been used to generate "risk maps" for Rift Valley fever — a virus that spreads from animals to people and in severe cases can cause blindness or death. Researchers have said the system in some cases has given two to six weeks advance warning.

Last year, other researchers using satellite data in east Africa said they found that a small change in average temperature was a warning sign cholera cases would double within four months.

"We are getting very close to developing a viable forecasting system" against cholera that can help health officials in African countries ramp up emergency vaccinations and other efforts, said a statement by one of the authors, Rita Reyburn of the International Vaccine Institute in Seoul, South Korea.

Some diseases are hard to forecast, such as West Nile virus. Last year, the U.S. suffered one of its worst years since the virus arrived in 1999. There were more than 2,600 serious illnesses and nearly 240 deaths.

Officials said the mild winter, early spring and very hot summer helped spur mosquito breeding and the spread of the virus. But the danger wasn't spread uniformly. In Texas, the Dallas area was particularly hard-hit, while other places, including some with similar weather patterns and the same type of mosquitoes, were not as affected.

"Why Dallas, and not areas with similar ecological conditions? We don't really know," said Roger Nasci of the Centers for Disease Control and Prevention. He is chief of the CDC branch that tracks insect-borne viruses.

Some think flu lends itself to outbreak forecasting — there's already a predictability to the annual winter flu season. But that's been tricky, too.

Seasonal flu reports come from doctors' offices, but those show the disease when it's already spreading. Some researchers have studied tweets on Twitter and searches on Google, but their work has offered a jump of only a week or two on traditional methods.

In the study of New York City flu cases published last month in the Proceedings of the National Academy of Sciences, the authors said they could foredcast, by up to seven weeks, the peak of flu season.

They designed a model based on weather and flu data from past years, 2003-09. In part, their design was based on earlier studies that found flu virus spreads better when the air is dry and turns colder. They made calculations based on humidity readings and on Google Flu Trends, which tracks how many people are searching each day for information on flu-related topics (often because they're beginning to feel ill).

Using that model, they hope to try real-time predictions as early as next year, said Jeffrey Shaman of Columbia University, who led the work.

"It's certainly exciting," said Lyn Finelli, the CDC's flu surveillance chief. She said the CDC supports Shaman's work, but agency officials are eager to see follow-up studies showing the model can predict flu trends in places different from New York, like Miami.

Despite the optimism by some, Dr. Edward Ryan, a Harvard University professor of immunology and infectious diseases, is cautious about weather-based prediction models. "I'm not sure any of them are ready for prime time," he said.

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Asia stocks eke out gains on China hopes, oil eases

HONG KONG (Reuters) - Most Asian stock markets edged higher on Thursday on hopes of a steady economic revival in China, although oil gave back part of the previous session's strong gains as investors took some money off the table and braced for more U.S. budget battles.

The MSCI Asia Pacific ex-Japan index of stocks <.miapj0000pus> rose 0.2 percent following Wednesday's 2 percent jump on relief that U.S. politicians had averted the "fiscal cliff".

Data from China showing the services sector expanded in December continued to underpin expectations of an economic recovery that has helped spur a strong rally in Hong Kong-listed Chinese shares <.hsce> over the past month.

The China Enterprises index <.hsce> which rallied more than 4 percent in the previous session eased 0.2 percent. Onshore Chinese markets will resume trading on Friday.

"China looks like it's improving at the margin and the market has momentum that could last for at least a few months," said Christian Keilland, head of trading at BTIG in Hong Kong.

"Investors seem to have accepted that reforms are underway but they're going to happen at a slower pace."

Australian stocks <.axjo> rose 0.7 percent to their highest in more than 19 months, with mining giants Rio Tinto up 2.4 percent and BHP Billiton up 0.8 percent, among the top gainers on the benchmark S&P ASX/200 index. <.axjo/>

South Korea's Kospi <.ks11> underperformed the region, falling 0.4 percent as automakers and other exporters slumped on a stronger Korean won, which hit a 16-month high against the dollar overnight.

In other currency markets, the Japanese yen bounced after hitting a 29-month low versus the dollar earlier in the day but analysts warned that any strength is likely to be short-lived.

"Technically dollar/yen looks somewhat overbought here. It's gone a long way in a very short time," said Callum Henderson, global head of FX research for Standard Chartered Bank in Singapore, adding that the dollar could see some consolidation in the near term before heading higher.

The euro which in overnight trading was close to a 8-1/2 month high against the dollar, slipped 0.1 percent.

The U.S. dollar rose 0.2 percent <.dxy> against a basket of major currencies.

President Barack Obama and congressional Republicans face even bigger budget battles in the next two months after a hard-fought deal averted the fiscal cliff of automatic tightening that threatened to push the U.S. into recession.

Strength in the dollar and profit-taking pushed oil prices lower with Brent crude slipping 0.3 percent and U.S. crude futures down 19 cents to $92.93.

"After the initial excitement, reality sets in," said Victor Shum, oil consultant at IHS Purvin & Gertz. "There will be other negotiations and the deal is a compromise."

(Reporting by Vikram Subhedar; Editing by Kim Coghill and Eric Meijer)

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Syrian rebels attack military airport in northwest

BEIRUT (Reuters) - Syrian rebels, some from Islamist units, fired machineguns and mortars at helicopters grounded at a northern military air base near the main Aleppo-Damascus highway on Wednesday, a monitoring group said.

The al Qaeda-linked al-Nusra Front, Ahrar al-Sham Brigade and other units operating in Syria's northwestern province of Idlib were attacking the Afis military airport near Taftanaz, the pro-opposition Syrian Observatory for Human Rights said.

There was no immediate account of the fighting around the air base from Syrian state media.

Insurgents trying to topple President Bashar al-Assad see his air power as their main threat. They hold swathes of eastern and northern provinces, as well as a crescent of suburbs around the capital, Damascus, but have been unable to protect rebel-held territory from relentless attack by helicopters and jets.

In recent months, rebel units have besieged several military installations, especially along Syria's main north-south artery from Aleppo, its most populous city, to Damascus.

The Observatory's director, Rami Abdelrahman, said Wednesday's attack was the latest of several attempts to capture the base. A satellite image of the airport shows more than 40 helicopter landing pads, a runway and aircraft hangars.

An estimated 45,000 people have been killed in the Syrian conflict, which began in March 2011 with peaceful protests against four decades of Assad family rule but turned into an armed revolt after months of government repression.

In Damascus, Assad's forces fired artillery and mortars at the eastern districts of Douma, Harasta, Irbin and Zamlaka, where rebels have a foothold, activists living there said.

Syria's civil war is the longest and deadliest conflict to emerge from uprisings that began sweeping the Arab world in 2011 and has developed a significant sectarian element.

Rebels, mostly from the Sunni Muslim majority, confront Assad's army and security forces, dominated by his Shi'ite-derived Alawite sect, which, along with some other minorities, fears revenge if he falls.

U.N.-led diplomatic peace efforts have stumbled. Western and many Sunni Arab states demand Assad's immediate removal, an idea resisted by Russia, China and Syria's Shi'ite ally Iran.

The rebels say they will not negotiate unless Assad, who has vowed to fight to the death, leaves power.

More than 110 people, including at least 31 of Assad's soldiers and militiamen, were killed in Syria on the first day of 2013, according to the Observatory, which tracks the conflict from Britain using a network of contacts inside the country.

(Editing by Peter Graff and Alistair Lyon)

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Jessica Simpson and Kendall & Kylie Jenner Make Readers Smile - and Frown

01/01/2013 at 07:00 PM EST

Splash News Online; Michael Simon/Startraks

What's on the minds of PEOPLE readers this week? We love getting your feedback, and as always, you weighed in – even while celebrating during the holidays – with plenty of reactions to all of our stories.

From Kelly Osbourne's dramatic weight loss to Jessica Simpson's happy baby news to the tragic death of hero surfer Dylan Smith in Puerto Rico, readers responded to what made them happy, what made them laugh out loud and what made them sad this week.

Check out the articles with the top reactions on the site this week, and keep clicking on the emoticons at the bottom of every story to tell us what you think!

Kelly Osbourne says loving herself was the key to her 60-lb. weight loss. She had to get to a place where she respected herself enough to take care of her health – and she emerged a fierce style star who is not afraid to rock a bikini.

Jessica Simpson became a new mom just 8 months ago – so the news that she's expecting baby No. 2 with fiancé Eric Johnson made readers say, "Wow!"

Reality stars Kendall and Kylie Jenner showed off expensive Christmas gifts on Instagram, and their pricey public display turned many readers off. From a pair of Louboutin spike heels to Balenciaga boots with a more than $1,000 price tag, the teens cleaned up with lavish presents that most could only dream about.

Dylan Smith captured our hearts with his heroic efforts during Superstorm Sandy, saving six people on his surfboard. But the Queens, N.Y., lifeguard, 23, who was named one of PEOPLE's Heroes of the Year, drowned on Dec. 24 in a surfing accident off Puerto Rico.

Does the idea of Tom Cruise dating a new woman make you laugh? Maybe. A story that falsely linked the actor romantically to a 26-year-old restaurant manager, had readers clicking LOL. Or maybe the funny part was this quote from a source, who told told PEOPLE: "He's single and will be talking to women – all of whom he won't be instantly dating."

Check back next week for another must-read roundup, and see what readers are reacting to every day here.

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Brain image study: Fructose may spur overeating

This is your brain on sugar — for real. Scientists have used imaging tests to show for the first time that fructose, a sugar that saturates the American diet, can trigger brain changes that may lead to overeating.

After drinking a fructose beverage, the brain doesn't register the feeling of being full as it does when simple glucose is consumed, researchers found.

It's a small study and does not prove that fructose or its relative, high-fructose corn syrup, can cause obesity, but experts say it adds evidence they may play a role. These sugars often are added to processed foods and beverages, and consumption has risen dramatically since the 1970s along with obesity. A third of U.S. children and teens and more than two-thirds of adults are obese or overweight.

All sugars are not equal — even though they contain the same amount of calories — because they are metabolized differently in the body. Table sugar is sucrose, which is half fructose, half glucose. High-fructose corn syrup is 55 percent fructose and 45 percent glucose. Some nutrition experts say this sweetener may pose special risks, but others and the industry reject that claim. And doctors say we eat too much sugar in all forms.

For the study, scientists used magnetic resonance imaging, or MRI, scans to track blood flow in the brain in 20 young, normal-weight people before and after they had drinks containing glucose or fructose in two sessions several weeks apart.

Scans showed that drinking glucose "turns off or suppresses the activity of areas of the brain that are critical for reward and desire for food," said one study leader, Yale University endocrinologist Dr. Robert Sherwin. With fructose, "we don't see those changes," he said. "As a result, the desire to eat continues — it isn't turned off."

What's convincing, said Dr. Jonathan Purnell, an endocrinologist at Oregon Health & Science University, is that the imaging results mirrored how hungry the people said they felt, as well as what earlier studies found in animals.

"It implies that fructose, at least with regards to promoting food intake and weight gain, is a bad actor compared to glucose," said Purnell. He wrote a commentary that appears with the federally funded study in Wednesday's Journal of the American Medical Association.

Researchers now are testing obese people to see if they react the same way to fructose and glucose as the normal-weight people in this study did.

What to do? Cook more at home and limit processed foods containing fructose and high-fructose corn syrup, Purnell suggested. "Try to avoid the sugar-sweetened beverages. It doesn't mean you can't ever have them," but control their size and how often they are consumed, he said.

A second study in the journal suggests that only severe obesity carries a high death risk — and that a few extra pounds might even provide a survival advantage. However, independent experts say the methods are too flawed to make those claims.

The study comes from a federal researcher who drew controversy in 2005 with a report that found thin and normal-weight people had a slightly higher risk of death than those who were overweight. Many experts criticized that work, saying the researcher — Katherine Flegal of the Centers for Disease Control and Prevention — painted a misleading picture by including smokers and people with health problems ranging from cancer to heart disease. Those people tend to weigh less and therefore make pudgy people look healthy by comparison.

Flegal's new analysis bolsters her original one, by assessing nearly 100 other studies covering almost 2.9 million people around the world. She again concludes that very obese people had the highest risk of death but that overweight people had a 6 percent lower mortality rate than thinner people. She also concludes that mildly obese people had a death risk similar to that of normal-weight people.

Critics again have focused on her methods. This time, she included people too thin to fit what some consider to be normal weight, which could have taken in people emaciated by cancer or other diseases, as well as smokers with elevated risks of heart disease and cancer.

"Some portion of those thin people are actually sick, and sick people tend to die sooner," said Donald Berry, a biostatistician at the University of Texas MD Anderson Cancer Center in Houston.

The problems created by the study's inclusion of smokers and people with pre-existing illness "cannot be ignored," said Susan Gapstur, vice president of epidemiology for the American Cancer Society.

A third critic, Dr. Walter Willett of the Harvard School of Public Health, was blunter: "This is an even greater pile of rubbish" than the 2005 study, he said. Willett and others have done research since the 2005 study that found higher death risks from being overweight or obese.

Flegal defended her work. She noted that she used standard categories for weight classes. She said statistical adjustments were made for smokers, who were included to give a more real-world sample. She also said study participants were not in hospitals or hospices, making it unlikely that large numbers of sick people skewed the results.

"We still have to learn about obesity, including how best to measure it," Flegal's boss, CDC Director Dr. Thomas Frieden, said in a written statement. "However, it's clear that being obese is not healthy - it increases the risk of diabetes, heart disease, cancer, and many other health problems. Small, sustainable increases in physical activity and improvements in nutrition can lead to significant health improvements."

___

Online:

Obesity info: http://www.cdc.gov/obesity/data/trends.html

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Marilynn Marchione can be followed at http://twitter.com/MMarchioneAP

Mike Stobbe can be followed at http://twitter.com/MikeStobbe

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United States avoids calamity in "fiscal cliff" drama

WASHINGTON (Reuters) - The United States averted economic calamity on Tuesday when lawmakers approved a deal to prevent huge tax hikes and spending cuts that would have pushed the world's largest economy off a "fiscal cliff" and into recession.

The agreement hands a clear victory to President Barack Obama, who won re-election on a promise to address budget woes in part by raising taxes on the wealthiest Americans. His Republican antagonists were forced to vote against a core tenet of their anti-tax conservative faith.

The deal also resolves, for now, the question of whether Washington can overcome deep ideological differences to avoid harming an economy that is only now beginning to pick up steam after the deepest recession in 80 years.

Consumers, businesses and financial markets have been rattled by the months of budget brinkmanship. The crisis ended when dozens of Republicans in the House of Representatives buckled and backed tax hikes approved by the Democratic-controlled Senate.

Asian stocks hit a five-month high and the dollar fell as markets welcomed the news. China's state news agency Xinhua took a more severe view, warning the United States must get to grips with a budget deficit that threatened not a "fiscal cliff" but a "fiscal abyss". Most of China's $3.3 trillion foreign exchange reserves are held in dollars.

The vote averted immediate pain like tax hikes for almost all U.S. households, but did nothing to resolve other political showdowns on the budget that loom in coming months. Spending cuts of $109 billion in military and domestic programs were only delayed for two months.

Obama urged "a little less drama" when the Congress and White House next address thorny fiscal issues like the government's rapidly mounting $16 trillion debt load.

There was plenty of drama on the first day of 2013 as lawmakers scrambled to avert the "fiscal cliff" of across-the-board tax hikes and spending cuts that would have punched a $600 billion hole in the economy this year.

As the rest of the country celebrated New Year's Day with parties and college football games, the Senate stayed up past 2 a.m. on Tuesday and passed the bill by an overwhelming margin of 89 to 8.

When they arrived at the Capitol at noon, House Republicans were forced to decide whether to accept a $620 billion tax hike over 10 years on the wealthiest or shoulder the blame for letting the country slip into budget chaos.

The Republicans mounted an effort to add hundreds of billions of dollars in spending cuts to the package and spark a confrontation with the Senate.

RELUCTANT REPUBLICANS

For a few hours, it looked like Washington would send the country over the fiscal cliff after all, until Republican leaders determined that they did not have the votes for spending cuts.

In the end, they reluctantly approved the Senate bill by a bipartisan vote of 257 to 167 and sent it on to Obama to sign into law.

"We are ensuring that taxes aren't increased on 99 percent of our fellow Americans," said Republican Representative David Dreier of California.

The vote underlined the precarious position of House Speaker John Boehner, who will ask his Republicans to re-elect him speaker on Thursday when a new Congress is sworn in. Boehner backed the bill but most House Republicans, including his top lieutenants, voted against it.

The speaker had sought to negotiate a "grand bargain" with Obama to overhaul the U.S. tax code and rein in health and retirement programs that are due to balloon in coming decades as the population ages. But Boehner could not unite his members behind an alternative to Obama's tax measures.

Income tax rates will now rise on families earning more than $450,000 per year and the amount of deductions they can take to lower their tax bill will be limited.

Low temporary rates that have been in place for the past decade will be made permanent for less-affluent taxpayers, along with a range of targeted tax breaks put in place to fight the 2009 economic downturn.

However, workers will see up to $2,000 more taken out of their paychecks annually with the expiration of a temporary payroll tax cut.

The non-partisan Congressional Budget Office said the bill will increase budget deficits by nearly $4 trillion over the coming 10 years, compared to the budget savings that would occur if the extreme measures of the cliff were to kick in.

But the measure will actually save $650 billion during that time period when measured against the tax and spending policies that were in effect on Monday, according to the Committee for a Responsible Federal Budget, an independent group that has pushed for more aggressive deficit savings.

(Additional reporting by Rachelle Younglai, Thomas Ferraro, Mark Felsenthal, David Lawder; Writing by Andy Sullivan; Editing by Alistair Bell and Eric Beech)

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