European shares saw strong gains today after US lawmakers finally approved a deal preventing huge tax hikes and spending cuts.

London shares had rallied 2.2% this evening, while the Paris CAC had gained 2.7% and the Frankfurt DAX was up 2%.

US markets on Wall Street were also higher.

Earlier, Asian stocks hit a five-month high as a last-minute deal ended the US "fiscal cliff" crisis that threatened a US recession and roiled world financial markets.

The US Congress approved extending lower Bush-era tax rates to all but the nation's wealthiest households in a budget deal that stops automatic implementation of $600 billion in spending cuts and tax increases.

The bill's passage in Congress allayed earlier concerns over complaints from a number of Republicans that spending cuts were still not adequately addressed.

The temporary reprieve that the deal offers the US economy also sets up Wall Street for a strong start to trading which resumes later in the day.

Asian stock markets cheered the developments as a major risk for investors, namely a slump in global growth, appeared to have receded for now.

Chinese shares in Hong Kong jumped 3% as last month's rally spilled over into the new year.

Asian stocks outside Japan rose nearly 20% last year as a combination of improving economic data from China, easing worries about a euro zone blow-up, and global central bank easing that encouraged investors back into equity markets.

Details of legislation averting 'fiscal cliff'

The US Congress last night passed a bill aimed at averting wide tax increases and budget cuts scheduled to take effect in the new year.

The measures would raise taxes by about $600 billion over 10 years compared with tax policies that were due to expire at midnight on Monday. It would also delay for two months across-the-board cuts to the budgets of the Pentagon and numerous domestic agencies.

Highlights of the bill include:

Income tax rates - Extends decade-old tax cuts on incomes up to $400,000 for individuals, $450,000 for couples. Earnings above those amounts would be taxed at a rate of 39.6%, up from the current 35%. Extends Clinton-era caps on itemised deductions and the phase-out of the personal exemption for individuals making more than $250,000 and couples earning more than $300,000.

Estate tax - Estates would be taxed at a top rate of 40%, with the first $5m in value exempted for individual estates and $10m for family estates. In 2012, such estates were subject to a top rate of 35%.

Capital gains, dividends - Taxes on capital gains and dividend income exceeding $400,000 for individuals and $450,000 for families would increase from 15% to 20%.

Alternative minimum tax - Permanently addresses the alternative minimum tax and indexes it for inflation to prevent nearly 30 million middle- and upper-middle-income taxpayers from being hit with higher tax bills averaging almost $3,000. The tax was originally designed to ensure that the wealthy did not avoid owing taxes by using loopholes.

Other tax changes -Extends for five years Obama-sought expansions of the child tax credit, the earned income tax credit, and an up-to-$2,500 tax credit for college tuition. Also extends for one year accelerated "bonus" depreciation of business investments in new property and equipment, a tax credit for research and development costs and a tax credit for renewable energy such as wind-generated electricity.

Unemployment benefits - Extends jobless benefits for the long-term unemployed for one year.

Cuts in Medicare reimbursements to doctors - Blocks a 27% cut in Medicare payments to doctors for one year. The cut is the product of an obsolete 1997 budget formula. Medicare is the US government programme that provides health care coverage to the elderly.

Social Security payroll tax cut - Allows a 2-percentage-point cut in the payroll tax first enacted two years ago to lapse, which restores the payroll tax to 6.2%.

Across-the-board cuts - Delays for two months $109 billion worth of across-the-board spending cuts set to start striking the Pentagon and domestic agencies this week.