(Reuters) - World shares rose and the single currency hit a new three-week high against a weaker dollar on Thursday, fuelled by the U.S. Federal Reserve's commitment to support growth and signs of some pressure in Europe to move away from harsh austerity.
Strong corporate profits emerging on both sides of the Atlantic and a dip in oil prices supported sentiment, but markets were cautious before a key test of demand for euro zone debt on Friday when Italy sells new bonds.
There are concerns - economic concerns, political concerns - but for now the overall momentum in company earnings and in the global economy should be an offsetting factor, said Gerhard Schwarz, head of equity strategy at Baader Bank.
The dollar has edged lower against a basket of major currencies since Fed Chairman Ben Bernanke reassured markets that the central bank would keep rates low to support growth, and would not hesitate to launch another round of bond purchases if the economy were to weaken.
The dollar index measured against a basket of major currencies was at 78.849, having fallen as low as 78.823 its lowest since early April.
Against the currencies of countries where central banks have recently said they were less likely to keep to easier monetary policies in the future, like the Canadian dollar and the British pound, the U.S. unit's fall was greater.
The greenback fell to C$0.9818 against the Canadian dollar, its lowest level since mid-September and sterling rose to a seven-month high.
The euro hit a three-week high of $1.3264, before settling to trade at around $1.3250 with the approaching Italian debt auction keeping traders cautious.
Italian bond yields headed lower before the auction, along with other peripheral euro zone government debt, following European Central Bank President Mario Draghi's call for a growth compact in the European Parliament on Wednesday.
Draghi gave little information on what this growth compact should consist of and also gave no indication the ECB was poised to give more support.
Weakening growth across the euro area has raised questions about the drive for tough government austerity measures which could worsen conditions further, making the debt burden more unsustainable.
France's Socialist presidential front runner Francois Hollande also seized on Draghi's comments, and said that leaders across Europe were waiting for his election to back away from German-inspired austerity.
France votes on May 6 in the second round of its presidential election, which Hollande is widely expected to win.
Italian 10-year government bond yields were 6.5 basis points lower at 5.59 percent. Two- and 5-year yields were down a similar amount.
On Friday, Italy will test sentiment in the euro zone debt market by selling up to 6.25 billion euros ($330 million) of bonds with a maturity of up to 10 years [nR1E8EG01F].
Italy paid the highest yield since January to sell six-month bills on Thursday indicating concerns about its low economic growth and large debt burdens have not eased much.
In European equities markets, investors were focused on the latest crop of corporate earnings which included many blue chip names like energy major Shell and Germany biggest bank, Deutsche Bank.
Shares prices briefly dipped into negative territory after weaker-than-expected euro zone sentiment data reignited concerns about the region's economy against a backdrop of mixed corporate earnings.
The FTSEurofirst 300 was up 0.1 percent at 1,043.38 points, after falling to a low of 1,042.00. It had risen as much as o.5 percent earlier in the session.
Investor sentiment globally has been boosted by strong corporate earnings out of the United States, where some 83 percent of the S&P 500 companies which have reported to-date have beaten or met forecasts, according to Thomson Reuters StarMine data.
This and the soothing words about growth from the U.S. Fed led to gains in Asia overnight and pushed the MSCI world equity index up 0.35 percent to a three-week high of 327.41 points. ($1 = 0.7585 euros)
(Additional reporting by Philip Baillie; Editing by Elizabeth Piper)