The US economy appears to have retreated from the threat of recession after congress voted in favour of a fiscal cliff package which will raise taxes for the wealthy and delay spending cuts.

Vice president Joe Biden was the chief broker of the deal to avert the fiscal cliff crisis (Reuters)

After months of tense negotiations between Democrats and Republicans, President Barack Obama finally declared victory last night after the Republican-controlled chamber agreed to a compromise which will increase taxes for the wealthiest and leave tax rates for the middle class untouched.

The House of Representatives passed the bill by 257 votes to 167, after support from Democrats. Speaking afterwards as he was due to return to Hawaii to resume a family holiday he had broken off, Obama said that by getting the proposals passed, he had fulfilled an election campaign pledge.

"The central premise of my campaign for president was to change the tax code that was too skewed towards the wealthy at the expense of working middle-class Americans. Tonight we have done that," he said.

Asian markets responded positively to the news, with stocks hitting a five-month high.

'Path forward'

The bill, which will delay spending cuts for two months, had already been passed in the Senate on Tuesday by 89 votes to eight, and was brokered chiefly by vice president Joe Biden.

It extends tax cuts for Americans earning under $400,000, although Democrats had initially wanted that to be $250,000.

Politicians were hopeful that it would be passed before the markets opened on Wednesday, after signs that a lack of agreement would send shockwaves "reverberating around the world".

Without the deal, some $600bn worth of automatic tax hikes and spending cuts - known as the fiscal cliff - would have been triggered at the start of January, threatening a new US recession.

However, concerns have been raised that while the vote has averted immediate tax hikes for almost all US households, it has not resolved the issue of spending cuts, but only delayed them.

"There is a path forward, if we focus not on politics, but on what's right for the country," Obama said.

Deficit deadline

The White House now faces a new deficit deadline on 1 March, when Republicans will thrash it out with Democrats over the debt ceiling.

Some Republicans suggested that it was worth supporting Obama to save their fight for that debate. The Republican senator Lindsey Graham said: "That's where we have leverage. Save your powder for the debt ceiling fight."

Obama urged "a little less drama" when the congress and White House next address fiscal issues such as the government's rapidly mounting $16tr debt load.