UPDATE 9-Oil rallies on US fiscal deal, hits highest since Oct

* U.S. Congress passes bill to avert 'fiscal cliff'

* China manufacturing data points to better economic growth

* Euro zone factory downturn deepens, limits oil demand

(Updates prices)

NEW YORK, Jan 2 (Reuters) - Oil prices rose to near 11-week

highs on Wednesday as part of a cross-market rally after the

U.S. Congress approved a deal to avert tax hikes and spending

cuts that threatened economic growth.

U.S. lawmakers on Tuesday approved a deal to prevent huge

mandated tax increases and spending cuts that investors worried

would have pushed the largest oil consumer into recession.

Months of uncertainty and political brinkmanship had rattled

consumers, businesses and financial markets. Concerns a deal to

avoid the "fiscal cliff" would not be reached was the latest

economic threat to weigh on oil markets, which were pressured

throughout last year by the euro zone crisis and tepid fuel

demand.

The agreement prompted a broad global market rally, boosting

investor appetite for riskier assets and pressuring the dollar

and safe-haven government bonds.

International benchmark Brent crude traded up to $112.90 a

barrel -- highs not seen since Oct. 19 -- before paring gains as

traders assessed possible new headwinds for the U.S. economy.

"There was the fiscal cliff euphoria, but the markets are a

little overdone and people realize you still have the debt

ceiling battle, social security taxes going up and dealing with

spending sequestration and budget cuts," said Mark Waggoner,

president at Excel Futures Inc.

Brent February crude traded up $1.26 to $112.37 a

barrel at 1:51 p.m. EST (1851 GMT), off the earlier highs but

above the 100-day moving average of $111.28.

U.S. February crude gained $1.14 to trade at $92.96 a

barrel, pushing above the 200-day moving average of $91.90 but

off earlier highs of $93.87.

Trading volumes showed signs of rebounding after dropping

off during the late December holiday period, with Brent volumes

slightly above the 30-day moving average, while U.S. crude

volumes were down 11 percent below that level.

POSITIVE SIGNS

Further support for oil came from positive economic data

from the United States and China, the two largest consuming

nations. U.S. manufacturing ended 2012 on an upswing, with

factories returning to growth in December after contracting the

previous month, the Institute for Supply Management said.

China's official manufacturing purchasing managers' index

held steady in December at 50.6, adding to evidence its economy

picked up in the fourth quarter of 2012 after gross domestic

product growth slowed for seven straight quarters.

Traders were watching tensions in the Middle East for signs

of threats to production in the vital area. Iran is carrying out

naval drills in the Strait of Hormuz, the shipping route through

which 40 percent of the world's sea-borne oil exports pass.

Iran has threatened to block Hormuz if the country comes

under military attack over its disputed nuclear program. The

United States has said it would not tolerate any obstruction of

commercial traffic through the strait.

The civil conflict in Syria, sectarian strife in OPEC-member

Iraq and the ongoing tensions between Israel and its neighbors

should remain potential flashpoints in the energy-rich region.

(Reporting by Robert Gibbons and Matthew Robinson in New York,

Christopher Johnson in London and Florence Tan in Singapore;

Editing by Jeffrey Benkoe and Kenneth Barry)

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