World stocks and the euro rose from last week's three-week lows on Tuesday as expectations that the euro zone will avoid a messy default of Greek sovereign debt attracted investors back into risky assets.
Investors are awaiting a parliamentary confidence vote for Greek Prime Minister George Papandreou, a step toward the passage of more spending cuts in exchange for foreign loans.
World stocks are down nearly 8 percent from their three-year high set in May as investors grew worried disorderly restructuring of Greek debt would cause ructions in the market and hit the region's banking sector.
Similarly, the euro has fallen 3.7 percent from its 2-1/2 year peak against the dollar set in May.
Going into the confidence vote people are thinking the Greek government will win and they don't want to be short of euros going into it, said Adrian Schmidt, currency strategist at Lloyds.
But there is a danger that there will be a knee-jerk positive reaction after the vote but then people will not want to be long of euros with the austerity vote coming up. MSCI world equity index <.MIWD00000PUS> was up 0.6 percent on the day while the FTSEurofirst 300 index <.FTEU3> rose 0.8 percent.
Emerging stocks <.MSCIEF> rose 1.1 percent. Shanghai stocks <.SSEC> -- which have been under pressure on concerns about more credit tightening -- rose 1 percent to move away from the previous day's 9-month low.
Certainly valuations are more attractive than they were. We have seen some selective bargain hunting here and there, said Keith Bowman, equity analyst at Hargreaves Lansdown.
The bund futures fell 21 ticks.
If the confidence vote is passed, the Greek parliament will vote on the austerity measures by June 28. Euro zone finance ministers gave debt-crippled Greece two weeks from Monday to approve further spending cuts and tax rises in return for another 12 billion euros in emergency loans.
Credit rating agency Fitch said on Tuesday it would regard both a Greek sovereign debt swap and a rollover of maturities, even a voluntary one, as a default.
U.S. crude oil rose 1.4 percent to $94.56 a barrel, helped by the dollar which fell 0.3 percent against a basket of major currencies <.DXY>.
The Federal Reserve starts its two-day meeting later on Tuesday. Since their last meeting in April, U.S. economic data has taken a decisively weak tone but the central bank has set the bar very high for any more monetary stimulus after its $600 billion bond buying program that ends this month.
(Additional reporting by Jessica Mortimer)