Dow surges 200 points as Italy approves austerity budget

US and European markets rallied late Friday as Italian policymakers approved new austerity measures, a move which should help pave the way for a new government.

US markets got off to a flying start as news of the deal broke, with the Dow up 1.7%, or 206 points, to 12,100.

The S&P 500 was also up 1.3% , to 1,256 points.

Meanwhile in London the FTSE 100 was almost 70 points, or 1.25%, higher at 5,512 just after the US opened, while major indices in Germany and France also rallied.

The austerity package outlines plans to make almost €60bn savings from a mixture of tax rises and spending cuts.

Berlusconi has promised to resign once the measures have been passed, with his successor tipped to be former EU commissioner Mario Monti.

It follows a tumultuous week for Europe's third-largest economy, which saw its ten-year bond yields top the key 7% level on Wednesday before slipping back.