WRAPUP 13-United States avoids calamity in 'fiscal cliff' drama

* Obama wins victory in tax fight

* Vote caps weeks of budget wrangling

* House Republicans back away from plan to confront Senate

* Bill raises taxes on the wealthiest

WASHINGTON, Jan 1 (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.

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