Equities overcame concerns about credit market risks on Thursday, rising solidly while the dollar stuck close to record lows against the euro.
Credit spreads in Europe tightened after widening some 30 basis points a day earlier.
The FTSEurofirst 300 index of top European shares rose 0.8 percent, as did London's FTSE 100 index, Frankfurt's DAX and Paris's CAC 40.
Earlier, Japan's Nikkei average rose 0.56 percent or 100.99 points to 18,116.57. The broader TOPIX index gained 0.53 percent to 1,768.00.
All this put MSCI's main world index just below its all-time high reached on Monday.
Credit markets were also indicating greater risk appetite. The iTraxx Crossover index, a barometer for European credit market sentiment, narrowed 20 basis points.
Despite the bullishness, investors remain worried that growing financial stress emanating from U.S. subprime mortgages, which target less creditworthy borrowers, will further undermine the U.S. domestic housing market, wider economy and corporate earnings.
Investors are nervous, said Shozui Kobayashi, assistant fund manager at United Investments Co. Ltd. in Japan. I don't think many people think the problem will develop into a risk of slowing the U.S. economy ... but it's a concern.
In testimony to Congress on Wednesday, U.S. Federal Reserve Chairman Ben Bernanke repeated that inflation is the Fed's top concern but said weakness in the housing sector would likely crimp growth in the coming quarters.
The Fed also lowered its forecasts for U.S. economic growth for 2007 and 2008. Bernanke was to speak again later on Thursday.
The dollar steadied against major currencies, halting its recent decline including a slide to multi-year lows on Wednesday when Bernanke spoke.
I expect the market to remain skittish. The dollar will probably remain a little on the back foot until we see much greater indications that the (subprime) situation is stabilizing, said Paul Mackel, senior currency strategist at
The euro was flat on the day at $1.3805, having hit $1.3833 on Wednesday, its strongest level since its launch in 1999. The dollar was flat against the yen at 121.85 yen.
The dollar index, a measure of the greenback's value against a basket of six major currencies, was steady at 80.398, after falling to a 12-year low of 80.227 on Wednesday.
Euro zone government bond yields edged higher, tracking softer U.S. Treasuries overnight.
The 10-year Bund yield was up 2.6 basis points at 4.565 percent.