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America has moved from the bitter election campaign that gave President Barack Obama a second White House term towards a test of whether Republicans and Democrats are now ready to set aside their deep partisan divisions and legislative gridlock.

Meanwhile US stocks suffered their worst one-day loss of the year as investors looked past the election and focused on big problems ahead in Washington and Europe.

The Dow Jones industrial average plunged 313 points to end at 12,933, its worst day of 2012, the Standard & Poor's 500 index fell 34 points to 1,395 and the Nasdaq composite index gave up 75 points to 2,937.

The challenge is to overcome the self-imposed "fiscal cliff", dramatic and automatic tax increases and spending cuts that could drag the nation back into recession.

But in day-after-election remarks Republicans signalled no readiness to give up on their ideological opposition to raising taxes on high-income Americans, but instead were continuing to push for lower rates across the board.

That Reagan era theory, known as trickle-down economics, holds that cutting taxes will vastly increase the size of the income and profit pie, thereby producing more revenue even at lower tax rates.

Speaker of the Republican-controlled House of Representatives, John Boehner, laid down that position yet again as the condition for working for any increase in government revenue in return for Mr Obama's stated - but undefined - willingness to cut spending on crucial social programmes.


The opening gambits did not argue for a quick solution to the country's skyrocketing debt and stubbornly high deficit that has the government now spending more than one trillion dollars a year more than it collects in taxes.

In the face of those challenges, Mr Obama had told Americans on election day that he had never been more optimistic. "The best is yet to come," he said at his early-morning victory rally in Chicago.

Now the immediate test is whether the country's deep partisan divide can be narrowed, as Democrats under Mr Obama's leadership try to work out a compromise with Republicans to avoid the "fiscal cliff" that could force spending cuts totalling 800 billion dollars (£503bn) next year alone.

The Press Association, photo by Barack Obama