US President Barack Obama has struck a deal with Republicans that should result in the so-called ´´Bush-era tax cuts´´ being extended for another two years. The deal includes a 13-month extension of unemployment benefits.

US chain store sales were up 3.8pct in the latest week compared with a year ago according to Redbook Research. So far in December, sales are up 0.6pct on November.

European shares closed at four-week highs on Tuesday, (after earlier hitting 27-month highs in intra-day trade) in response to the news of the extension of the Bush-era tax cuts in the US. Shares in Germany´s largest builder, Hochtief, climbed 3.4pct on news that Qatar was buying a stake as well as investor optimism on the firm´s rights issue. The FTSEurofirst index rose by 0.9pct, with the UK FTSE and German Dax both higher by 0.7pct.

US sharemarkets rose on Tuesday on signs of a deal between the White House and Congress to extend Bush-era tax cuts. With an hour of trade to go, the Dow Jones was higher by 27pts or 0.2pct with the S&P 500 up 0.4pct and the Nasdaq was higher by 15pts or 0.6pct.

US treasuries slumped on Tuesday (yields sharply higher) in response to the proposed extension of tax cuts. Low interest rates, quantitative easing (bond purchases) and the extension of the tax cuts should spur economic growth and ease deflationary risks. An auction of $32 billion of three-year notes was poorly received with the bid-to-cover ratio the lowest since February. US 2yr yields rose by 11pts to 0.54pct and US 10yr yields rose by 23pts to 3.16pct.

The Euro and commodity currencies rose in the European session before giving back gains in US trade. But the Japanese yen eased against the greenback. The Euro lifted from US$1.3310 to and US$1.3400, before retracing to US$1.3280. The Aussie dollar lifted from US99.00c to US99.65c, but retreated to US98.55c. And the Japanese yen eased from near 82.45 yen per US dollar to JPY83.55, ending US trade near the weakest levels.

US crude oil prices eased from two-year highs on Tuesday as the US dollar rallied, thus trimming purchasing power for oil buyers in Europe and Asia. The Nymex crude oil contract fell by US69c to US$88.69 a barrel.

Base metal prices were again generally higher on the London Metal Exchange on Tuesday, the exception being aluminium which was broadly flat. Zinc rose 4pct with lead and nickel up 2.1pct and copper rose 1.1pct. But the gold price eased as the US dollar rose while more optimistic investors also trimmed safe-haven flows. The Comex gold futures price fell by US$5.30 an ounce to US$1,410.80.

Ahead: In Australia, housing finance data is released. In the US no major economic data is released.

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