The House of Representatives voted for a bill passed on Monday by the Senate that will raise taxes on wealthy individuals and families and preserve certain benefits. Together, these measures will soften some of the blow that would have resulted without a deal to avoid a fiscal crunch.

The vote averted immediate pain like tax hikes for almost all U.S. households, although it did nothing to resolve other political showdowns on the budget that loom in coming months. Spending cuts of $109 billion in military and domestic programs were only delayed for two months.

European shares surged, with the FTSEurofirst 300 .FTEU3 rising 1.4 percent and the euro zone's blue chip Euro STOXX 50 .STOXX50E index climbing 1.8 percent, while the safe-haven dollar and German government bonds fell.

Asian shares also rallied, with The MSCI Asia Pacific ex-Japan index of stocks .MIAPJ0000PUS gaining 2.1 percent. Japanese markets were closed on Wednesday for a holiday.

U.S. stocks ended 2012 with their strongest day in more than a month, putting the S&P 500 up 13.4 percent for the year, compared with a flat performance in 20111, as lawmakers in Washington closed in on a resolution to the fiscal negotiations.

The Dow Jones industrial average .DJI gained 166.03 points, or 1.28 percent, to end at 13,104.14. The Standard & Poor's 500 Index .SPX gained 23.76 points, or 1.69 percent, to finish at 1,426.19. The Nasdaq Composite Index .IXIC gained 59.20 points, or 2.00 percent, to close at 3,019.51.

The Dow rose 7.3 percent in 2012 and the Nasdaq climbed 15.9 percent.

(Reporting by Blaise Robinson; editing by Stephen Nisbet)

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