Markets rally on 'fiscal cliff' agreement

The stock market surged Wednesday after Congress finally agreed on a package to avoid portions of the "fiscal cliff."

The Dow Jones Industrial Average jumped more than 200 points in the first minutes of trading, while the S&P 500 and the Nasdaq both posted gains above 1.5 percent. 

The stock spike comes after Congress approved a package that averts many of the economically damaging portions of the "fiscal cliff."

While markets were initially bullish on the agreement, the compromise also sets the stage for financial turmoil down the road. 

The deal does not increase the debt limit, meaning lawmakers will be sparring on that issue in a matter of weeks. The government officially reached its $16.4 trillion borrowing limit Monday, and Congress will likely have about two months to haggle over legislation to raise the debt ceiling before the government defaults.

The compromise in Congress also delays automatic spending cuts for just two months, buying Washington a brief stretch of time before the battle over those cuts begins anew.

The bill also indefinitely extends marginal tax rates on annual family income up to $450,000, lifts the top capital gains and dividends rates to 20 percent, extends unemployment insurance benefits and includes a host of other tax provisions.

Stocks had already surged late Monday, as reports began to emerge that the Senate was homing in on an agreement. 

The Dow closed the final day of trading in 2012 up 167 points, or 1.3 percent. The S&P 500 and Nasdaq both posted strong gains of more than 1.5 percent. 

Markets were closed New Year's Day, leaving investors on the sidelines as both parties in the House huddled to discuss the package, which overwhelmingly approved first by the Senate. 

House Republicans initially were considering amending the deal to add more spending cuts and sending it back to the other chamber, but ultimately scrapped that idea due to insufficient support. 

Instead, the House signed off on the deal late Tuesday evening, sending it to the president for his signature.