The euro rebounded from near four-year lows against the dollar and European shares rose on Thursday after China denied a report it was reviewing its investments in euro zone debt.

U.S. crude oil futures rose $1 to $72.51 a barrel as stock markets pushed higher, bolstering the positive sentiment from data showing a surge in U.S. demand.

The ailing euro received badly needed support from the Chinese central bank which said Europe remained a key investment market for its foreign exchange reserves.

The euro had shed 1.5 percent after the Financial Times reported that China's State Administration of Foreign Exchange (SAFE) was meeting foreign bankers because of concerns about its exposure to debt troubles in Europe.

That report was groundless, said SAFE, the arm of the central bank that manages China's $2.4 trillion in foreign exchange reserves, the world's largest stockpile.

The China comments downplaying the alleged change in diversification policy are reassuring on the surface and that has helped the euro rise, said Lee Hardman, currency analyst at BTM-UFJ.

But it comes down to actions rather than words and if the European debt crisis keeps rising, there will be less attraction for China to diversify from dollars into euros, he said.

The euro extended gains against the dollar to a session high at $1.2342, up 1.4 percent on the day after the Chinese comments. By 0750 GMT, the euro was up 1.1 percent at $1.2289.

China has been trying to diversify its currency reserves, the world's largest that have topped $2.4 trillion, to reduce the dollar's dominance in favor of the euro and yen to curb risks.

BARGAIN-HUNTING BOOSTS STOCKS

The MSCI index of world stocks <.MIWD00000PUS> rose 0.8 percent as investors picked up shares beaten down in recent sessions in a sell-off fueled by fears Europe's debt crisis could spark a credit crunch and undermine global economic recovery.

The pan-European FTSEurofirst 300 index <.FTEU3> rose 0.8 percent, adding to the previous session's rise and tracking gains in Japan. The index is still down more than 12 percent from a mid-April peak, on worries about Europe's debt crisis.

The FT report had fed broad risk aversion and hit U.S. stocks on Wednesday. The Dow Jones industrial average <.DJI> closing below 10,000 for the first time since early February.

It's mostly a reaction to oversold conditions. Equities are cheap in most places, other than in the worst affected regions, said Bernard McAlinden, investment strategist at NCB Stockbrokers, in Dublin.

Attractive stock valuations and technically oversold conditions after a recent selloff prompted selective buying in Asia, but investors tread cautiously amid persistent concerns over the economic fallout from the euro-zone's debt woes.

A rise in U.S. stock futures provided an additional boost. S&P futures climbed 1.7 percent, with some in the market saying they thought U.S. shares were due a technical rebound.

Gold ticked higher as persistent worry about Europe's debt crisis attracted buying from investors trying to avoid risk.

Spot gold gained 0.4 percent to $1,214.45 an ounce. Gold hit a record high of $1,248.95 in mid-May as investors ditched the euro on fears that euro zone austerity policies could undermine the global economic recovery.

(Additional reporting by Kevin Yao in Singapore; Brian Gorman and Neal Armstrong in London, editing by Mike Peacock)

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