Global stocks extend gains on 'cliff' deal

US stocks kicked off the new year with their best day in over a year today, sparked by relief over a last-minute deal in Washington to avert the "fiscal cliff" of tax hikes and spending cuts that threatened to derail economic growth.

The Dow Jones industrial average gained 308.41 points, or 2.35 percent, to end at 13,412.71. The Standard & Poor's 500 Index jumped 36.23 points, or 2.54 percent, to 1,462.42. The Nasdaq Composite Index rose 92.75 points, or 3.07 percent, to close at 3,112.26.

A last-minute US budget deal sent European shares to 20-month highs today, pushing some regional indexes into "overbought" territory and leaving them vulnerable to a pullback.

The agreement to avert steep austerity measures in the world's largest economy triggered a rally in assets that depend on economic strength, such as equities, but the deal was only a partial fix to the country's budget woes.

The pan-European FTSEurofirst 300 index closed 2.1 percent higher at 1,157.40 points in the first trading session of the year, led by shares in the cyclical basic resources sector.

The Euro STOXX 50 rose 2.9 percent to 2,711.25 while the Euro STOXX 50 Volatility Index, which measures option prices on euro zone blue chips and is regarded as a measure of stock market risk aversion, dropped 14 percent.