UPDATE 8-Oil rallies on US fiscal deal, hits highest since Oct

* U.S. Congress passes bill to avert 'fiscal cliff'

* China manufacturing data points to better economic growth

* Euro zone factory downturn deepens, limits oil demand

(Recasts with updated prices, market activity, changes dateline from LONDON)

NEW YORK, Jan 2 (Reuters) - Oil prices rose to near 11-week highs on Wednesday, joining in a cross-market new year rally after the U.S. Congress approved a deal to avert tax hikes and spending cuts that many feared would depress economic growth and demand for oil.

U.S. lawmakers on Tuesday approved a deal to prevent huge mandated tax increases and spending cuts that investors worried would have pushed the United States, the world's largest economy and No. 1 global oil consumer, off a "fiscal cliff" into recession.

Months of uncertainty and political brinkmanship had rattled consumers, businesses and financial markets, with oil prices buffeted by each turn of events.

The fiscal agreement prompted a broad global market rally, boosting investor appetite for riskier assets and pressuring the dollar and safe-haven government bonds.

A weaker U.S. currency can support dollar-denominated oil prices by making fuel more affordable for holders of other currencies and increasing demand for petroleum.

Brent February crude was up 75 cents at $111.86 a barrel at 11:09 a.m. EST (1609 GMT), back above the 100-day moving average of $111.28. The contract reached $112.90, its highest point since October.

U.S. February crude jumped $1.28 at $93.10 a barrel, easily pushing back above the 200-day moving average of $91.90. It reached $93.87, also the highest since October.

"The U.S. fiscal deal has been very positive for markets, which can now look forward to a better year ahead," said Eugen Weinberg, global head of commodities research at Germany's Commerzbank in Frankfurt.

"A combination of U.S. monetary stimulus and Chinese growth should be very positive for commodities in 2013."

Crude futures trading volume increased as market participants returned from year-end holidays.

Brent and U.S. crude dealings were above 200,000 lots traded, already topping or near Monday's volumes before midday in New York.

CHINA GROWTH

Oil prices also received support on Wednesday from Chinese data pointing to improving economic activity in the world's second largest economy and second biggest oil consumer.

China's official manufacturing purchasing managers' index held steady in December at 50.6, adding to evidence its economy picked up in the fourth quarter of 2012 after gross domestic product growth slowed for seven straight quarters.

Also, Middle East tensions should continue to be supportive to oil prices.

Iran is carrying out naval drills in the Strait of Hormuz, the shipping route through which 40 percent of the world's sea-borne oil exports pass.

Iran has threatened to block Hormuz if the country comes under military attack over its disputed nuclear program. The United States has said it would not tolerate any obstruction of commercial traffic through the strait.

The civil conflict in Syria, sectarian strife in OPEC-member Iraq and the ongoing tensions between Israel and its neighbors should remain potential flashpoints in the energy-rich region.

DEMAND STILL TEPID

Oil demand is falling in many parts of the industrialized world, including the United States. In Europe, the debt crisis was dampening economic activity and energy use.

Purchasing managers' surveys on Wednesday showed a slowdown in euro zone factory activity deepened in December as new orders tumbled, suggesting the economy may have slipped further into recession in the last quarter of 2012.

The oil market was well supplied and global inventory levels were high as U.S. oil production increases and OPEC and its Middle East producers tried to keep the market balanced.

"The firmness of Brent in 2013 will depend very much on the supply policies of Saudi Arabia as it battles the crude oil supply push from the United States," Olivier Jakob, a Swiss-based energy market consultant, said.

"To defend $100 Brent, Saudi Arabia will have to reduce its crude oil exports to sufficiently offset the new oil coming out of Iraq and of the United States."

(Reporting by Robert Gibbons in New York, Christopher Johnson in London and Florence Tan in Singapore; Editing by Jeffrey Benkoe)