European shares look set to finish the third quarter with their best performance in nearly a decade on expectations of economic recovery while world stocks also rose strongly though not as much as in the previous period. The pan-European FTSEurofirst 300 <.FTEU3> index put on 0.4 percent on Wednesday and the MSCI world index added the same, while commodity prices were also firmer but the dollar fell against a basket of currencies.

We're ticking higher on the last day of a strong quarter but investors remain a touch cautious ahead of the start of October, always a volatile month, and Friday's U.S. jobs report, said Mic Mills, senior trader at ETX Capital in London.

Equities have been rallying hard since early March as investors have become more confident about the prospects for economic recovery.

The European benchmark index is up more than 18 percent in July-September, on course to record its biggest quarterly rise since December 1999. It rose nearly 16 percent in the previous quarter but is still 38.5 percent below its peak in mid-2007.

Global stocks gained 17.6 percent this quarter after rising more than 21 percent in April-June, its best ever quarterly rise, while Britain's FTSE 100 <.FTSE> was set to register its best quarterly gains since the index was launched in 1984.

The corporate outlook has also showed some signs of revival, with the world economy recovering from its worst recession since the 1930s Great Depression.

British retailer Marks & Spencer on Wednesday posted an improvement in its quarterly sales trend and raised its forecast for full-year profit margin, but cautioned 2010 was likely to be a tough year.

GDP and earnings are still being upgraded, valuations are not horribly expensive and cash is still zero percent, we are in a sweet spot, said Khiem Do, head of Asia multi-asset group at Baring Asset Management.

Crude prices were higher, rising above $67 a barrel as the dollar eased, while investors are focusing on talks over Iran's nuclear plans.

Metal prices also stayed firm, helped by the weaker dollar. Gold was poised to post its best quarterly performance since the first quarter of 2008.

The U.S. dollar <.DXY> slipped against major currencies on month- and quarter-end buying lifting sterling and the yen. The greenback was down 0.4 percent at 89.76 yen.

The euro held firm ahead of the European Central Bank's one-year cash tender results. Attention will focus on the amount of liquidity pumped into the system.

Lacklustre demand would strengthen the ECB's belief that money markets are on the mend, But strong demand would mean levels of cash held by banks remain at exceptionally high levels until the middle of next year, unless the ECB takes steps to drain it from the market.

The Australian dollar, which has been on the uptrend after recent market talk about an imminent rate hike lifts its yield allure, received a further boost as data showed consumers continue spending even as the stimulus programme nears its end. The Aussie dollar was up 1 percent at $0.8795.

Yields on benchmark 10-year U.S. Treasuries were up 2 basis points at 3.316 percent, while the 10-year euro zone Bund yield was up 1 basis points at 3.232 percent.

(Additional reporting by Jon Hopkins and Jamie McGeever in London and Umesh Desai in Hong Kong, editing by Mike Peacock)

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