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

* Global shares hit highest level since September

* Wall St extends rally 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 while gold fell almost 2 percent on

to its lowest since August.

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.

"Agreement on the 'fiscal cliff' could bring a significant

move away from safe-haven assets, not just here in the U.S., but

globally," said Dan Heckman, senior fixed income strategist at

U.S. Bank Wealth Management in Minneapolis.

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

Goldman Sachs Group was up 2.8 percent and Morgan Stanley

gained 2.3 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 84.56 points,

or 0.64 percent, at 13,319.95. The Standard & Poor's 500 Index

was up 11.04 points, or 0.77 percent, at 1,441.40. The

Nasdaq Composite Index was up 29.80 points, or 0.99

percent, at 3,040.40.

European shares ended higher, with a key index closing just

a few points below its 2012 high.

The euro surged to its highest level against the dollar in

more than seven months and held close to a nine-month peak

versus the yen on Tuesday.

The euro was last up 0.5 percent at $1.3228 after

hitting a high of $1.3238, its strongest level since early May.

The dollar index fell to a two-month trough of 79.260.

The index was last quoted at 79.318, down 0.3 percent.

Oil prices rose. Front-month Brent crude oil prices

rose $1.28 to $108.94 a barrel by 3:06 p.m. (2006 GMT). U.S.

January crude rose 73 cents, or 0.84 percent, to settle

at $87.93 a barrel, having traded from $87.21 to $88.16.

In other assets, gold, seen as a safe-haven asset, tumbled

with spot gold down 1.9 percent at $1,666.90 an ounce.

U.S. Treasury yields rose to their highest since October on

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

was down 15/32, with the yield at 1.824 percent.

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