World stocks rose toward a three-month high on Tuesday after strong earnings from Goldman Sachs , while jitters about other corporate earnings kept government bonds and the low-yielding yen on a firm footing. Goldman surprised investors by posting a much higher than expected first-quarter profit and said it planned a $5 billion common share sale to pay back government funds. Other bank shares which are due to post their results this week also rallied on Wall Street on Monday.

Investors were not without worries about the global economic slowdown and its impact on corporates. Philips

posted a core first quarter loss and General Motors slumped more than 17 percent in Frankfurt as concerns grew the automaker might file for bankruptcy.

However, growing optimism on the banking sector was enough to encourage European investors, coming back after a long Easter holiday weekend, to push the main MSCI world index closer to its highest level since January.

The financials were the main reason behind the last twelve months of pain, so it is only right that investors look to these heavyweights to lead us back up, said Chris Hossain, senior sales manager at ODL Securities.

The MSCI world equity index <.MIWD00000PUS> rose 0.3 percent. The FTSEurofirst 300 index <.FTEU3> rose 1 percent while emerging stocks <.MSCIEF> rose 1 percent to hit a 6 month high.

Intel and Johnson & Johnson report earnings later.

U.S. crude oil fell 1.9 percent to $49.11 a barrel after the International Energy Agency slashed its demand forecast.

The June bund future rose 48 ticks. The yen rose half a percent to 99.63 per dollar while the dollar <.DXY> rose 0.3 percent against a basket of major currencies. The euro lost half a percent to $1.3301.

Firm equity markets and the decline in implied volatility across all asset classes suggest that the recovery in risk appetite may last a bit longer, Commerzbank said in a note to clients.

In this environment, commodity currencies as well as the Swedish crown and Norwegian crown should be able to gain moderately versus the euro while emerging market currencies should also do well.

(Additional reporting by Atul Prakash)

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