* C$ at C$0.9844 versus US$, or $1.0158 * U.S. fiscal deal jolts interest in Canadian currency * Rise in line with moves in oil, gold, stocks By Alastair Sharp TORONTO, Jan 2 (Reuters) - The Canadian dollar rallied sharply on Wednesday as investors cheered a political deal reached in the U.S. Congress that prevented measures that would likely have pushed Canada's main trading partner into recession. The Canadian currency notched its biggest one-day gain since October 17 after U.S. lawmakers on Tuesday approved a plan to prevent huge tax increases and delay spending cuts that were due to kick in this month. While a deal was widely expected by investors, most placed significant weight on a risk that no deal would be done in time. "It wasn't perceived as a done deal that the issue would be resolved, although that was everyone's median case," said Adam Cole, global head of foreign exchange strategy at Royal Bank of Canada. "It's the removal of that 20 to 30 percent probability (of no deal) the market was priced for that's resulted in the price move," he said. At 9:10 a.m. (1410 GMT) the Canadian dollar was trading at C$0.9844 to the greenback, or $1.0158, compared with C$0.9925, or $1.0076, according to Thomson Reuters data at 4 p.m. Eastern (2100 GMT) on Monday. RBC's Cole pointed to a likely short-term range between the mid-December low of C$0.9824 and C$0.9900. The deal also provoked price jumps in gold, oil and stocks. Beyond the immediate boost to assets considered more risky, such as the Canadian dollar, Cole said the deal would also shine a more positive light on upcoming economic data including manufacturing data due later on Wednesday and employment numbers out on Friday. "Markets will be prepared to take soft numbers and look through them to the extent that they will be seen as having been distorted by the imminence of the fiscal cliff," he said. Canadian government debt yields were lower across the curve, with the two-year bond off 8 Canadian cents to yield 1.179 percent, while the benchmark 10-year bond fell 83 Canadian cents to yield 1.896 percent.