World stocks hit a 4-1/2 week high on Monday as investors grew confident over global economic prospects after Greece avoided an early debt default and data pointed to a moderate slowdown in China's growth.

Shanghai stocks hit a six-week high after data last week showed Chinese manufacturing growth moderated in June, raising expectations that the economy may not be heading for a sharp slowdown despite monetary policy tightening.

Over the weekend, euro zone finance ministers approved a 12 billion euro installment of aid for Greece and said the details of a second aid package would be finalized by mid-September.

But the euro erased gains after ratings agency Standard & Poor's said a debt rollover plan being considered for Greece may still put the country into selective default.

Banks effectively own Greece, and Greece, as an asset, is under pressure. I think banks will be under pressure for some time, said Richard Greenwood, fund manager at Bedlam Asset Management, which manages $700 million.

However, the companies with pricing power, stable demand and good management will just do their business. Some healthcare and consumer staples will continue to be very stable. M&A activities will also help stocks.

The MSCI world equity index <.MIWD00000PUS> rose 0.47 percent to hit its highest since June 1.

The benchmark index rose more than 5 percent last week, its biggest weekly gain since July 2010.

European stocks <.FTEU3> gained 0.2 percent while emerging stocks <.MSCIEF> rose 1 percent, helped by Shanghai stocks <.SSEC> which rose nearly 2 percent.

U.S. markets are closed for the Independence Day holiday.

European markets look much happier than they did just a week ago. Bears have been banished to the sidelines, said Darren Sinden, senior sales trader at Silverwind Securities.

We may see some profit-taking across the rest of the week, but that would be as expected given the significant gains posted by major European indices in the last sessions.

Fund tracker EPFR's data showed investors piled back into emerging market equity funds in the week to June 29 as hopes that Greece would avoid imminent default encouraged risk taking.

Inflows into global emerging market funds tracked by EPFR hit a 12-week high during the week, following three straight weeks of outflows.

U.S. crude oil was steady at $94.96 a barrel.

The euro fell 0.2 percent to $1.4514 after S&P poured cold water on the euro's rally, which has also drawn support from expectations that the European Central Bank will raise interest rates at its policy meeting later this week.

Bund futures rose 12 ticks.

The dollar <.DXY> was broadly steady against a basket of major currencies.

Improved appetite for risk and the end of the Federal Reserve's bond-buying program reduced demand for U.S. Treasury bonds, with yields on 10-year notes settling at 3.18 percent, near its highest in almost two months and adding to a weekly rise of more than 30 basis points.

(Additional reporting by Atul Prakash; Editing by Anna Willard)