Hope that European Union leaders are close to a plan to solve the euro zone debt crisis lifted stocks on Tuesday although trade was cautious.

World stocks, including European shares, were higher and the euro gained, hitting a new six-week high. Wall Street looked set to open higher, boosting sentiment in Europe.

EU leaders are to meet on Wednesday with tentative plans in place for Greece's debt to be reduced, European banks to be recapitalized and the euro zone's EFSF rescue fund to be increased to provide partial insurance for sovereign bonds.

But the agreements and how far they go remain under discussion, causing some nerves on financial markets.

Adding to the uncertainty, German lawmakers secured a full parliamentary vote on any euro zone crisis measures negotiated, a move that risks delaying Europe's response to its two-year-old debt problems.

Whilst official comments have stated that good progress is being made, behind the scenes things look a little shakier, Capital Spreads dealer Jonathan Sudaria said.

For this reason, Tuesday's trading was cautious to begin with, but prices lifted as the Wall Street opening neared. News that German consumer morale unexpectedly rose going into November also provided some succor.

MSCI's all-country world stock index .MIWD00000PUS was up a quarter of a percent at highs last seen at the beginning of September. Hopes for a euro zone settlement have boosted stocks in recent weeks.

The pan-European FTSEurofirst 300 .FTEU3 also gained a quarter of a percent after earlier being in the red. Strong corporate results from the likes of oil and gas firm BG Group and Deutsche Bank, which both beat forecasts, helped underpin the market, after its recent two-day rally.

Earlier, Japan's Nikkei .N225 closed down 0.9 percent as the domestic corporate earnings season began.

EURO SLIPS

The euro rose slightly as the dollar hit a new six-week low against a basket of major currencies .DXY.

The yen also hovered just shy of a record high against the dollar, leaving investors nervous about possible intervention by the Japanese authorities to stem the currency's rise.

The euro went as high as at $1.3959, a six-week high, but traders said large gains would be difficult given the political circumstances.

It will be difficult for the euro to break above $1.40 ahead of the meeting. People are happy to sit on their positions awaiting any outcome, said Niels Christensen, currency strategist at Nordea in Copenhagen.

The indications are that there is a will to solve the problem, which is maybe not a huge leap but it's a step ahead not backwards.

German government bond prices fell as equities rose.

Traders and strategists said they expected the bond market to remain volatile going into Wednesday's summit, with thin volumes adding to the potential for sharp market moves.