World stocks edged higher while the dollar steadied on Tuesday as BNP Paribas' move to pay back state financial support and growing corporate takeover activity bolstered confidence about economic recovery.

The yen slipped from the previous day's 8-month high versus the dollar after Japanese Finance Minister Hirohisa Fujii said he would not rule out taking action if currency moves were irregular.

Shares of BNP Paribas, France's biggest bank by market capitalization, rose 3 percent after it launched a capital increase for 4.3 billion euros as part of its move to reimburse the French state early.

Its move follows similar paybacks from UBS, Goldman Sachs, JP Morgan and Morgan Stanley.

Wall Street rallied on Monday after Xerox Corp agreed to buy Affiliated Computer Services for $5.5 billion and Abbott Laboratories said it would pay $6.6 billion for Solvay's drug unit.

MSCI world equity index rose 0.15 percent.

The FTSEurofirst 300 index <.FTEU3> of leading European shares fell 0.15 percent, however, as weaker oil prices weighed on commodity shares and investors grew nervous about buying more given a recent rally and sharp lurch higher on Monday.

After the storming day yesterday, markets are prone to sell off, particularly with so much uncertainty, said Peter Dixon, economist at Commerzbank.

The upward trend is still intact, and I think (BNP's move) is an indication of the strength of banks' underlying fundamentals, compared to their position a year ago.

Emerging stocks <.MSCIEF> rose more than 1 percent.

The cost of financing has fallen significantly since the start of the credit crisis as central banks around the world cut interest rates to near zero, making it easier for corporates to raise funds to conduct merger and acquisition activity.

Whilst some companies are still in the process of repairing their balance sheets from the credit binge earlier in the decade, there are also a number sitting on large amounts of cash, which sooner or later they will need to put to work, Calyon said in a note to clients.

We feel it is too early to be calling the beginning of another M&A cycle just yet though ... However, as economic visibility improves, we believe the M&A theme could be big next year.

U.S. crude oil fell 0.1 percent to $66.73 a barrel.

The yen fell 0.1 percent to 89.81 per dollar, having risen as high as 88.22 on Monday. The dollar <.DXY> was steady against a basket of major currencies.

The September Bund future fell 9 ticks ahead of further debt supply due to hit the market, in a week that will see around 30 billion euros in new issuance.

(Additional reporting by Simon Falush, editing by Mike Peacock)