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World equities rose at the start of the second quarter as upbeat European and Chinese manufacturing data fuelled optimism about the global economic recovery, while the dollar hit three-month highs versus the yen.

The FTSEurofirst 300 index of European shares was up one per cent, and in Asia overnight the Nikkei average rose to its highest in a year-and-a-half, buoyed by the fall in the yen.

That fall, which pushed the dollar to a three-month high came on talk that Japanese investors will look for higher returns abroad now that the new fiscal year has started.

Shares were up as two business surveys showed China's vast manufacturing sector moved up a gear in March as orders climbed, pointing to brisk first-quarter GDP growth.

HSBC's China Purchasing Managers' Index showed first-quarter manufacturing output expanded at the briskest clip in the survey's six-year history.

The official purchasing managers index rose to 55.1 in March from 52.0 in February, beating the median forecast of 54.5 in a Reuters poll of economists.

'The data looks encouraging. The knock-on effect is in terms of Chinese expenditure,' said Justin Urquhart Stewart, director at Seven Investment Management.

'You have seen more imports going into China as a result of a lot of the infrastructure work being done and that impacts directly into a lot of European companies.'

Manufacturing activity in the euro zone also grew at its fastest pace in over three-years last month, data showed.

World stocks measured in the MSCI All-Country World Index were up 1.43 per cent, having posted their fourth consecutive quarterly gain with a 2.7 per cent rise in the first three months of 2010.

US stock futures pointed to a higher open on Wall Street later in the day.

The dollar hit a three-month high of 93.73 yen with traders saying sentiment towards the Japanese currency is turning bearish into the new quarter.

Meanwhile the euro slipped to 1.3510 dollars, and marked a lifetime low against the Swiss franc, still vulnerable to sovereign risks festering in the background.

Meanwhile, sterling gained, hitting a five-week high against the euro of 88.51 pence, with traders citing an opinion poll showing the opposition

Conservatives could gain a majority in the upcoming election, diminishing UK political uncertainty.

The pick-up in riskier assets put government bonds under pressure.

Benchmark 10-year Treasury yields were up half a basis point at 3.837 per cent ahead of manufacturing and labour market data, while 10-year German Bund yields were just over a basis point higher at 3.104 per cent.

Core European bonds were still broadly supported however, on concerns over debt-laden Greece's funding strategy.

The premium investors demand to hold equivalent maturity Greek bonds was a couple of basis points tigher at 346 basis points, according to Tradeweb data, still more than twice that of Irish debt.