* 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 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.
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.
"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 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."
GOLD, OIL DECLINE AS DOLLAR FIRMS
The rise in U.S. borrowing costs gave the dollar an edge over the euro 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.
Spot gold 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 and BNP Paribas up between 0.6 and 1.1 percent.
The FTSEurofirst 300 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 rose 4 basis points to just shy of 3.0 percent.
Meanwhile, the stronger dollar weighed on commodities.
U.S. crude oil futures fell for the second day in a row by 0.5 percdent to $88.27 a barrel, while benchmark industrial metal copper 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)