President Barack Obama, left, shakes hands with Senate Republican Leader Mitch McConnell, right, after signing the $858-billion US tax deal into law on Friday. (Pablo Martinez Monsivais/Associated Press)U.S. President Barack Obama on Friday signed into law a bill that will extend tax cuts from the George W. Bush-era and renew unemployment benefits.

The legislation came after Republicans dealt the president a harsh blow in November mid-term elections and took control of the House of Representatives.

"It's a good deal for the American people; this is progress, and that's what they sent us here to achieve," Obama said before a group of Republican and Democratic politicians.

Obama put his signature to the bill a day after the House of Representatives voted 277-148 in favour. The Senate voted 81-19 in favour of the package.

The bill will extend tax cuts for all income brackets for two years. They were due to expire on Jan. 1, 2011.

Obama had said he opposed extending the tax cuts for the highest income brackets and vowed to fight them when they came up for renewal. But he went along with them in the face of the resurgent Republican presence in Congress so that he could get Republican support for the 13-month extension of unemployment benefits and a Social Security tax cut that the bill also includes.

The bill is expected to cost the government about $858 billion US.