GLOBAL MARKETS-U.S. tax deal cheers stocks, batters bonds

                                
 * U.S. bond yields extend surge on deficit worries
                                
 * Dollar rises versus yen, Wall Street set for mixed start
                                
 * European equities nudge up, debt crisis on back-burner
                                
 * Gold falls from fresh record peak, oil also down
                                
 
                                
 (Updates lead, refreshes prices)
                                
 By Amanda Cooper
                                
 LONDON, Dec 8 (Reuters) - Asian and European stocks rose on
Wednesday as a deal on U.S. tax cuts offered some optimism over
the outlook for growth, although the prospect of higher national
debt drove U.S. bond yields to near six-month highs.
                                
 European equities <.FTEU3> rallied as investors shifted
their attention from euro zone debt worries to focus on the
prospects for further recovery, while Wall Street was set for a
mixed open. [.EU] [.N]
                                
 The U.S. plan for a fiscal boost to its economy came as one
senior Chinese official expressed concern about America's
long-term financial health, and contrasts sharply with euro zone
governments bearing down hard on public deficits.
[ID:nTOE6B7078]
                                
 "It's becoming increasingly clear the U.S. is taking a very
different approach to the Europeans in dealing with their debt
overhang ... they're reflating their way out of it and the
Europeans are going the opposite way," said Grant Turley,
strategist at ANZ.
                                
 U.S. Treasury prices have fallen by 2 percent in two days
after President Barack Obama proposed extending tax cuts aimed
at support economic growth, reinforcing the Federal Reserve's
multi-billion dollar bond-buying programme, but unleashed fears
about the longer-term rise in the national debt level.
                                
 In what one bonds trader described as a "diabolical" market,
10-year Treasury yields <US10YT=RR> rose by 5 basis points to
3.19 percent, having risen to 3.255 percent in Asian trading,
their highest since late June.
                                
 "At the moment, the market is taking the rise in U.S. yields
as a positive for the dollar rather than a supply story," said
Adam Cole, global head of FX strategy at RBC Capital Markets.
"There are rising expectations for growth, where growth is a
scarce commodity."
                                
 While the economy may gain a much-needed boost from the tax
cuts, the move will also likely swell the $1.3 trillion U.S.
budget deficit, which has already persisted for nearly two solid
years, and this prospect prompted investors to shed Treasuries,
thereby driving up the risk premiums on U.S. debt.
                                
 "The tax cuts have changed the market's landscape," said
Arihiro Nagata, fixed income manager at Sumitomo Mitsui Banking
Corp.
                                
 "A lot of people are now changing their scenarios. Many
economists are saying the tax cuts will push up U.S. growth by
0.5 to 1.0 percentage point."
                                
 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
                                
 Graphic on U.S. tax:        http://r.reuters.com/fuc98q
                                
 Analysis on the U.S. tax deal:          [ID:nN07277043]
                                
 Bonds plunge on tax plan fears:         [ID:nN07563028]
                                
 Graphic on euro zone debt:  http://r.reuters.com/hyb65p
                                
 Asia corporate sentiment:   http://r.reuters.com/myt98q
                                
 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

                                
 GOLD, OIL DECLINE AS DOLLAR FIRMS
                                
 The rise in U.S. borrowing costs gave the dollar an edge
over the euro <EUR=> among yield-hungry investors, thereby also
delivering a blow to gold, which has shed 2.5 percent since
hitting a record-high on Tuesday, as its investment appeal
diminishes as rates rise.
                                
 The dollar strength pushed the euro towards important
support levels around $1.3200 as the European bloc comes under
pressure over high debt levels. [FRX/]
                                
 Spot gold <XAU=> was down 0.3 percent on the day at $1,396.39
an ounce, having risen to an all-time high of $1,430.95 an ounce
on Tuesday.
                                
 European equities edged higher, led by gains in the banking
sector, where the likes of Credit Suisse <CSGN.VX> and BNP
Paribas <BNPP.PA> up between 0.6 and 1.1 percent.
                                
 The FTSEurofirst 300 <.FTEU3> was last up 0.2 percent at
1,118.25, having struck its highest in over 26 months this week.
                                
 With U.S. Treasuries under fire, German government bonds
fell, pushing yields on the benchmark 10-year Bund <DE10YT=TWEB>
rose 4 basis points to just shy of 3.0 percent.
                                
 Meanwhile, the stronger dollar weighed on commodities.
                                
 U.S. crude oil futures <CLc1> fell for the second day in a
row by 0.5 percdent to $88.27 a barrel, while benchmark
industrial metal copper <CMCU3> slid more than 1 percent to
$8,785 per tonne after hitting a fresh peak of $9,044 on
Tuesday.
 (Additional reporting by Saikat Chatterjee in Hong Kong,
Hideyuki Sano in Tokyo and Ian Chua in Sydney; Editing by Toby
Chopra)