Investors shifted focus from worrying about Middle East turmoil to concentrate on fundamentals on Tuesday, lifting global stocks against a background of improved economic data and corporate results.

Inflation expectations lifted the euro, helping drive the dollar to a 12-week low against a group of other currencies.

The price of oil, the most sensitive indicator of market unease about Egypt, eased, although Brent crude remained a few cents above $100 a barrel.

Cairo was braced for a protest that aimed to bring a million people onto the streets demanding an end to the 30-year-rule of President Hosni Mubarak.

Oil's dip, however, was more related to China's factory growth cooling to a five-month low, signaling demand may not rise as quickly in the world's second-largest oil user.

The Egyptian crisis has prompted bursts of risk aversion on financial markets over the past few days but investors on Tuesday were trading on expectations of better prospects for the world economy.

Purchasing manager indexes (PMI) for January are being released through the day. Early indications were that they will come in relatively strong.

Investors were encouraged by upbeat U.S. Midwest factory activity and consumer spending figures on Monday.

There is confidence in the market as companies are reporting good figures, said Heinz-Gerd Sonnenschein, equity markets strategist at Deutsche Postbank in Bonn.

German chipmaker Infineon, for example, raised its full-year outlook, anticipating strong demand from the automotive and industrial sectors.

World stocks as measured by MSCI gained a quarter of a percent, with Europe's FTSEurofirst 300 up 0.4 percent.

Japan's Nikkei earlier closed up 0.36 percent.

Developed market stock indexes are generally in positive territory for the year. By contrast, Citi reported that most core government bonds lost money in January.

DOLLAR FALLS

The dollar fell to a 12-week low against a basket of currencies, driven lower as the euro extended gains in the wake of above-forecast inflation data.

The dollar index fell to its weakest since early November.

Euros brought $1.3700, up 0.1 percent after earlier trading around $1.3746, nearing a 10-week high hit last week, buoyed by the view that euro zone interest rates would rise before U.S. rates.

Relative rate spreads are still favoring the euro to the dollar, said John Hydeskov, currency strategist at Danske. Pressure has intensified for the ECB to do something about inflation when it meets on Thursday.

Demand for euro zone government debt was flat to lower, pushing up longer-term yields.

(Additional reporting by Harpreet Bhal and Naomi Tajitsu; Editing by John Stonestreet)

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