World stocks hit three-week highs while the dollar eased on Tuesday as markets anticipated a dovish tone from U.S. Federal Reserve Chairman Ben Bernanke after the central bank raised its discount rate last week.

European shares rose 0.5 percent in early trade <.FTEU3> after most Asian markets apart from Tokyo ended higher. U.S. stock futures were also up after a soft session in Wall Street overnight.

All eyes are on Bernanke's testimony to Congress on the Fed's exit strategies, especially after the central bank last week raised the rate it charges banks for emergency loans.

San Francisco Fed President Janet Yellen was the latest policymaker to stress the move was not a sign of rapid monetary tightening.

The U.S. economy still needs extraordinarily low interest rates, as inflation is undesirably low and growth will likely be sluggish for several years, she said on Tuesday.

MSCI's world equity index <.MIWD00000PUS> was up 0.2 percent on the day after climbing to its highest since early February.

Bernanke and his fellow policymakers have made it clear that this is not the start of moving the base rates up, said Koen De Leus, economist at KBC Securities.

We have had a rebound in GDP (gross domestic product) but that was all due to inventories and government stimuli and if you take these out you still have an economy that is contracting.

The euro pared gains after German Ifo institute's business climate index fell to 95.2 in February, lower than forecasts for 96.1. [ID:nBAE003734]. But the euro was still up 0.5 percent on the day at $1.3665 as the dollar eased against a basket of currencies <.DXY> ahead of Bernanke's testimony.

Analysts said while investors remained mindful of ongoing fiscal problems in Greece, many were taking a breather after dumping the euro in the past weeks.

There's been a degree of risk-aversion fatigue, said Geoffrey Yu, currency strategist at UBS in London.

People are buying risk, at the same time (risk) selling flows have been drying up.

The euro gained against the Swiss franc after the Swiss central bank was seen buying euros on trading platform EBC during Asian hours.

The euro was up 0.2 percent at 1.4666 francs after rising as high as 1.4687 francs.

Euro zone government bond yields drifted higher as the market awaited a Greek bond issue and as gains in European equities undermined demand for lower risk sovereign debt.

U.S. crude oil was steady near six-week highs above $80 as forecasts for an increase in U.S. crude and gasoline stockpiles offset concerns that a strike at Total's French refineries would trigger fuel shortages.

Gold prices firmed as the dollar softened.

(Additional reporting by Harprett Bhal and Naomi Tajitsu; editing by Stephen Nisbet)