World stocks hit a 2012 high on Tuesday, after the Federal Reserve signalled it would continue supporting economic growth with loose monetary policy, with expectations the euro zone will agree a bigger crisis firewall adding to the positive tone.

MSCI's main global stock index was up 0.6 percent at 337.95, its highest since August last year. <.MIWD00000PUS>.

European shares rose for a second day, tracking gains on Wall St and in Asia, with the pan-European FTSEurofirst 300 <.FTEU3> index of top shares up 0.8 percent at 1,097.30 points.

The dollar traded near a one-month low against a basket of currencies <.DXY> while yields on U.S. Treasury bonds held near recent one-week lows after Fed Chairman Ben Bernanke delivered a relatively cautious outlook for the U.S. economy on Tuesday.

It is a significantly more dovish tone from Bernanke, which will give a boost for stocks. The prospect of easy monetary policy will help the housing market in the United States, said Guy Foster, head of portfolio strategy at Brewin Dolphin.

It will also have a knock-on effect to corporate financing and improve the terms of real estate loans. We are staying positive on risk and have a bias in favour of U.S. equities over European.

While he did not hint at a third round of bond purchases, Bernanke made clear the U.S. central bank is in no rush to reverse course after responding aggressively to a deep recession.

The S&P 500 <.SPX> rebounded from last week's drop to retake a four-year high on Monday, while Japan's Nikkei <.N225> jumped 2.4 percent on Tuesday to hit its highest level since the massive earthquake and tsunami on March 11 last year.

Investors seem fairly confident that the Q1 equity rally is set to continue, Barclays said in a note, citing a client survey that found 80 percent believed equities to be fairly- or under-valued.

Royal Bank of Scotland led gains, rising 5.5 percent on reports that Britain could sell as much as a third of its stake in the bailed-out bank to Abu Dhabi's wealth fund.

The euro was down 0.1 percent at $1.3348, although it stayed close to a one-month high of $1.3368 hit on Monday on trading platform EBS.

The single currency drew support from Germany's signal on Monday that it was willing to increase the resources available for fighting the debt crisis by combining the euro zone's temporary and permanent bailout funds.

Expectations European Union finance ministers will agree on Friday to create a firewall big enough to protect Spain and Italy supported their bonds despite fears that Spain especially will not be able to meet budget targets it has already softened.

Italian and Spanish bond yields have eased from recent highs while German government bond prices reversed an early rise on Tuesday as growing risk appetite spurred gains in equities.

June Bund futures were one tick higher on the day at 136.75, after retreating from a session high of 137.21. Benchmark 10-year yields were a basis point lower at 1.94 percent.

Fears the euro zone debt crisis could escalate again as Southern European states struggle to push through unpopular reforms aimed at stimulating growth are nevertheless expected to underpin safe-haven assets such as Bunds.

Spain comfortably sold 2.58 billion euros in treasury bills on Tuesday, while Italy is due to sell zero coupon and inflation-linked bonds later ahead of an auction of medium- and longer-term debt on Thursday. The cost of insuring Italian and Spanish debt against default also fell.

(Editing by Stephen Nisbet)