Optimism about the state of the world economy lifted stocks on Tuesday as well as boosting the dollar and keeping oil prices at a near 27-month peak.

Monday's U.S, Chinese and European PMI manufacturing data continued to boost risk sentiment across financial markets along with the January effect that occurs as fund managers dispense with the need to settle end-of-year balances.

Some investors were also looking ahead to Friday's U.S, jobs data, expecting to see the world's largest economy in an improving state of health.

People are starting to recognize there is some improvement in the employment picture in the United States. You would expect to see some of the confidence of the (manufacturing) PMI to be reflected in the non-farm payrolls, said Philip Isherwood, European equities strategist at Evolution Securities.

World stocks as measured by MSCI were up nearly a quarter of a percent on the day, with the emerging market sub-index gaining 0.4 percent.

In Europe, the FTSEurofirst 300 gained 0.6 percent while Japan's Nikkei began the year with a 1.7 percent climb to a 7-1/2 month closing high.

Investors may stay cautious before U.S. jobs data this Friday, but they are optimistic overall, said Hiroichi Nishi, general manager at Nikko Cordial Securities.

Recent bullishness about the global economy has also pushed up the price of crude oil, which hovered near its highest levels in more than two years.

U.S. crude for February rose 9 cents to $91.64 a barrel, close to Monday's peak of $92.58, which was the highest intraday price since early October 2008.

Oil sentiment has turned decidedly bullish, partly driven by unusually cold weather, but more due to an increasingly optimistic consensus view on 2011 economic performance, especially for the U.S., JPMorgan analysts said.


The upbeat U.S. manufacturing data lifted the dollar, while the euro eased slightly after last week's short-covering surge.

The dollar was up 0.31 percent on a basket of currencies

while the euro eased around 0.1 percent from late U.S. trading on Monday to $1.3353.

The single currency had dipped as low as $1.3324 earlier on Tuesday, with some traders citing talk of possible euro-selling flows related to bond redemptions and coupon payments of euro zone debt.

We are returning to normal levels of trading and the key themes that people are coming back to is structural weakness in the euro zone and worries about the Chinese economy, said Jeremy Stretch, head of currency strategy at CIBC World Markets.

Bund futures shed early gains as commodities and equities continued to benefit from broader signs of an improved economic outlook.

(Additional reporting by Anirban Nag and Brian Gorman; Editing by John Stonestreet)