The MSCI world equity index looked set on Tuesday for its best quarterly gain since its 1988 launch and oil was on course for its strongest quarter since 1990, as recovery talk fired up markets in the past three months.

Investors have taken heart from lower global interest rates and signs central banks' quantitative easing policies have been effective in kick-starting economies, and China and other countries' stimulus packages have boosted demand for raw materials.

Lower volatility, as measured by the VIX index <.VIX>, is also suggesting markets are no longer in crisis mode.

The first half of 2009 is ending on a far more positive note than it began, said Mitul Kotecha, head of global foreign exchange strategy at Calyon, in a client note.

Confidence has improved, data releases especially in Q2 2009 have revealed a much smaller pace of deterioration...risk appetite is set to improve further in H2 2009 but, as with economic recovery, the improvement will be gradual and prone to setbacks.

The world equity index has risen over 22 percent in the past three months, and is up 9 percent on the year, after suffering its worst quarter on record in the last three months of 2008.

Risky emerging stocks <.MSCIEF> have put in an even stronger performance, gaining over 34 percent on the quarter and around the same amount on the year.

The world index gained 0.4 percent on Tuesday and the emerging market index edged up 0.16 percent.

The FTSEurofirst 300 index <.FTEU3> was steady on Tuesday, but at a rise of over 17 percent in the last three months was eyeing its best quarterly gain since Q4 1999.

We are still living under a credit crunch and the central banks have very little choice but to keep interest rates quite low for some time. That may be one of the major fundamental reasons why asset markets have a tendency to remain underpinned, said Luc Van Hecka, chief economist at KBC Securities in Paris.

Today we could have some volatility tied to the second quarter ending.

Oil prices leapt more than 2 percent to an eight-month high above $73 a barrel before trimming gains, on quarter-end positioning as oil coasted toward its best quarterly gain in 19 years.

Trading volume in both Brent and U.S. crude oil futures surged to more than 10 times the norm for the Asian time zone.

The safe haven U.S. dollar was weaker, dropping 0.3 percent against an index of currencies <.DXY> and down 7 percent on the quarter.

The pound hit its highest in 8 months above $1.6740 after Nationwide data showed UK house prices surprisingly rose a second month in June.

The euro gained 0.2 percent to $1.4106 and the dollar fell 0.6 percent to 95.57 yen.

Euro zone government bond futures fell 4 ticks to 121.11.

(Additional reporting by Atul Prakash; editing by Chris Pizzey)