Evidence that China may avoid a hard landing for its high-flying economy lifted riskier assets such as stocks on Tuesday although investors remained on edge about the deepening Greek debt crisis.

Fresh from being downgraded by S&P to just above default, Greece was set to sell six-month treasury bills later in the day in what will be a clear test of investors' view of the country's short-term prospects.

The cost of insuring Greek debt against default rose as did the yield on Greek government bonds. Greek stocks fell 1 percent, but European shares were otherwise buoyant.

Euro zone finance ministers were to meet in Brussels where the crisis and the disagreement between Germany and the European Central Bank over whether Greece should restructure will take center stage.

For the time being, however, financial markets focused on data from China which was interpreted as negating the need for aggressive tightening by policymakers.

China's inflation accelerated in May to a 34-month high of 5.5 percent, while retail sales came in marginally higher than forecast and industrial output was slightly lower.

Although a little above expectations, the inflation data suggested Chinese price rises were not out of control and that growth is being managed.

After the data, China's central bank increased the reserve requirement ratio for its commercial lenders by another 50 basis points, its sixth increase this year, extending its campaign to tame inflation.

A measured slowdown in the Chinese economy is just what investors want, with today's figures providing some hope that this is just what is unfolding, said Keith Bowman, equity analyst at Hargreaves Lansdown. World stocks as measured by MSCI <.MIWD00000PUS> were up 0.6 percent while the pan-European FTSEurofirst 300 <.FTEU3> gained 0.9 percent.

Earlier, Japan's Nikkei <.N225> closed barely changed from the previous day.

BUOYANT EURO

Greece's trials did little to discourage investors from buying the euro, which rose more than a quarter a percent against the dollar to $1.4458.

Despite the debt crisis, the euro has climbed 8 percent against the dollar this year, nearly 7 percent against the yen and 2.5 percent against the pound.

This is primarily on the back of different expectations for interest rate rises. The ECB is expected to tighten policy for the second time this year in July while the U.S. economy is struggling, pointing to a continued period of ultra-low interest rates there.

Clearly the markets are very concerned about the U.S. economy and the U.S. debt situation itself, said Greg Gibbs, strategist at RBS. Those are the key factors preventing what would normally be a bigger fallout, given the amount of risk around the European situation.

Yields on core euro zone debt rose slightly with 10-year German Bunds offering 2.98 percent. Greece's 10 year bond yield climbed 4 basis points to 17.14 percent.

(Additional reporting by Atul Prakash and Neal Armstrong, editing by Mike Peacock)

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