By Naomi Rovnick and Yoruk BahceliLONDON (Reuters) - UK markets were spared painful blows from the new Labour government's first budget on Wednesday, which announced 40 billion pounds of tax hikes to plug shortfalls but soothed jitters about public spending blowouts and debt market disorder.As finance minister Rachel Reeves balanced big debt and investment increases with pledges for tough control of day-to-day spending, investors' fears of a potential repeat of then-prime minister Liz Truss' chaotic September 2022 mini-Budget eased.Government borrowing costs measured by 10-year gilt yields touched their highest since May at around 4.38%, but the move was modest in comparison to the surge two years ago. Sterling rose, meanwhile, and the domestically-focused FTSE mid-250 index briefly jumped more than 1.5%."Investors feared a new Liz Truss moment, but in the end the announcements do not suggest an uncontrolled surge in debt," Edmond de Rothschild Asset Management portfolio manager Nabil Milali said.PRE-BUDGET NERVESInvestors pre-budget nerves had risen after data showed British public borrowing had reached nearly 100% of GDP and Reeves accused the former Conservative government, which Labour replaced in July's landslide election win, of creating a 22 billion pound fiscal "black hole".In a sign of the unease, shares in UK retailers and pub operators had slumped for days and gilt yields had risen.But after Reeves on Wednesday outlined about 100 billion pounds of capital spending over the next five years and directed tax grabs towards businesses instead of workers, the FTSE 250 index ended Wednesday higher while UK retail and banking stocks bounced.investing.com