GLOBAL MARKETS-Shares at 3-mo high on US budget deal hopes

* Global shares hit highest level since September

* Wall St extends gains on 'fiscal cliff' hopes

* Euro hits fresh 7-1/2 month high vs U.S. dollar

By Angela Moon

NEW YORK, Dec 18 (Reuters) - Global stocks advanced to their

highest levels since September on Tuesday on signs of compromise

in U.S. talks to stop automatic tax hikes and spending cuts that

could hurt the economy next year.

With confidence rising that lawmakers would avert the

"fiscal cliff," investors shifted funds to stocks and the euro

and pulled away from assets traditionally viewed as safe harbors

like bonds, gold and the U.S. dollar. The euro hit a 7-1/2 month

high against the greenback.

Wall Street rallied, putting the S&P 500 on track for its

best two-day run in a month, as investors gained confidence that

federal budget talks were progressing, even as significant

differences separated Democrats and Republicans in Washington.

The gains followed a rally on Monday that lifted the S&P 500

to its highest point in nearly two months. Investors remain

confident Washington will come to an agreement.

President Barack Obama's most recent offer makes concessions

to the Republicans on taxes and entitlement spending, but House

Speaker John Boehner said the offer is "not there yet," though

he remains hopeful of an agreement. Senate Democrats have

expressed concern about entitlement cuts, particularly to Social

Security.

"As you get more and more clarity and dialogue that there

will be a compromise to avoid a fiscal cliff, I think the

markets are going to rally," said Weston Boone, vice president

of listed trading at Stifel Nicolaus Capital Markets.

"What's holding this market back - the S&P 500 - from

continuing to reach higher highs is the macro headwinds, and a

lot of that emanates from (Washington) D.C."

For a second day, banks led the rally on Wall Street.

Goldman Sachs Group was up 3.1 percent and Morgan Stanley

gained 2.9 percent after Jefferies Group reported

a higher-than-expected adjusted quarterly profit.

Jefferies was up 3 percent to $18.79. The S&P

500 Financial Index climbed 1 percent.

The Dow Jones industrial average was up 103.36

points, or 0.78 percent, at 13,338.75 in afternoon trading. The

Standard & Poor's 500 Index was up 13.46 points, or 0.94

percent, at 1,443.82. The Nasdaq Composite Index was up

37.41 points, or 1.24 percent, at 3,048.02.

European shares ended higher, with a key index closing just

a few points below its 2012 high.

The euro rose to its highest in more than seven months

against the dollar and hovered near a nine-month peak versus the

yen as market players sold the safe-haven dollar.

Oil prices rose. Front-month Brent crude oil prices

gained $1.03 to $108.67 a barrel, briefly topping the 14-day

moving average of $108.87 a barrel. U.S. crude oil futures

gained 76 cents to trade at $87.97 a barrel, breaking

above the 50-day moving average of $87.64 a barrel after testing

that level during Monday's trade.

The benchmark 10-year U.S. Treasury note was

down 12/32, with the yield at 1.8153 percent. U.S. 30-year

Treasuries bond prices fell a full point. The bonds

were last down 27/32 in price to yield 2.99 percent, after

rising as high as 3.001 percent. The debt closed on Monday at

yields of 2.95 percent.

Most Popular in Business