European shares rose and the dollar held near highs on Tuesday on hopes German and U.S. data will fuel expectations of an economic recovery and of no fresh stimulus moves from the Federal Reserve later in the day.

Germany's ZEW economic sentiment index, due at 1000 GMT, should show Europe's biggest economy steadily recovering from last year's dip, while U.S. February retail sales, due at 1230 GMT, are expected to reveal a second straight month of gains.

Strong data from the two economic powerhouses should combine to support stocks and growth-linked currencies like the Australian and New Zealand dollars, said Steve Barrow, head of G10 currency research at Standard Bank.

There is an upside risk to U.S. retail sales data, given the underperformance last month.

The broad FTSE Eurofirst 300 index of top European companies <.FTEU3> gained 0.7 percent to 1,084.16 points - less than 10 points off peaks last seen in the middle of last year.

The MSCI world equity index <.MIWD00000PUS> reflected earlier gains in Asia and a flat session on Wall Street on Monday to rise 0.35 percent to 329.87.

Liquidity has helped to improve sentiment in the near term, but I think there are a number of longer term concerns in the market place, and that is all to do with growth, Joshua Raymond, market strategist at City Index said.

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For a graphic comparing German ZEW, equities and GDP: http://link.reuters.com/cag54s

For a graphic showing components of U.S. GDP: http://link.reuters.com/fan36s

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DOLLAR FIRMS AHEAD OF FED

The dollar rose to an 11-month high versus the yen due to the reduced expectations of additional U.S. monetary stimulus measures from the Federal Reserve hours after the Bank of Japan left policy unchanged.

Against a basket of currencies, the dollar <.DXY> stood at 79.981, not far from a seven-week high of 80.132 struck on Monday.

The euro was little changed at $1.3135, not far from a one-month low of $1.3079 as worries over Portuguese and Spanish sovereign debt keep investors on edge.

German government bond futures were 24 ticks lower at 138.63, after hitting a contract high of 139.06 the previous session ahead of the ZEW.

Signs of an improved outlook in for the world economy lifted oil prices with Brent crude rebounding towards $126 a barrel. Brent crude rose 43 cents to $125.77 a barrel after easing on Monday for the first time in four sessions.

Gold was ticking higher to $1,702.50 an ounce although trading was cautious with investors preferring to wait for the outcome of the Federal Reserve meeting, expected around 1815 GMT.

Easing expectations for the Fed to signal the need for more measures to keep interest rates low could eventually weigh on gold, which has risen around 9 percent so far this year on a near-zero U.S. rate outlook.

(Additional reporting by Anirban Nag; Editing by John Stonestreet)

Germany Inflation