Global stocks rose to their highest in nearly two weeks Tuesday, while safe haven assets like the Swiss franc and German Bunds were subdued, encouraged by signs that the U.S. economy may avoid recession.

With big-ticket data like U.S. job numbers due later this week, many investors remain uncertain about a recovery in the world's largest economy, leaving risk for a correction in markets still trading at low holiday volumes.

But European shares <.FTEU3> rose 1.6 percent, tracking gains on Wall Street and in Asia, while London shares advanced 2 percent in early trade, catching up with the broader market after a holiday on Monday. <.EU>

World stock markets, as measured by MSCI <.MIWD00000PUS>, rose 0.5 percent to their highest point since Aug. 18. The index is still down nearly 15 percent from a May high, however, after taking a hammering at the start of August due to growing pessimism about the U.S. economy as well as worries over Europe's sovereign debt crisis and banks.

With consumer confidence, the (U.S) ADP jobs report, ISM Manufacturing, jobless claims and nonfarm payrolls report all due in the coming days, there is going to be a lot of nervousness around, said Ben Potter, strategist at IG Markets.

The market could also be seen as vulnerable given it has rallied ahead of these big economic reports. We think a lot of participants will be employing a 'wait and see' approach as we navigate through the next few days.

Investors would also await the minutes from the Federal Reserve's last committee meeting on Aug. 9, which could offer more clues on divisions among board members over further stimulus measures.

Still, the latest gains in stock markets encouraged some investors to switch out of safe-haven assets like the Swiss franc and core government bonds into higher-yielding currencies such as the New Zealand dollar.

An Italian bond auction later in the day will serve as a barometer of investor demand -- and give more hints how much further the euro zone's debt crisis has to run -- after recent bond purchases by the European Central Bank.

CREDIT CRUNCH

The Italian tender is likely to sail through smoothly and could give a temporary boost to risk appetite, but it is unlikely to lift broader concerns that the risk of contagion could still engulf larger economies like Italy, Spain and France.

These concerns have made investors such as U.S. money market funds reduce exposure to European banks and pushed their credit default swap spreads higher.

The Itraxx European senior financials index has pushed beyond the peaks seen during the last crisis, and at 247 basis points the spread is starting to reflect credit ratings that are not in line with their current ones.

The euro was down 0.2 percent against the dollar at $1.4484, and also eased against the Swiss franc.

The franc, hit by Switzerland's efforts to weaken it in the past month, traded slightly down against the dollar, at 0.8160 francs, hovering near a five-week low touched on Monday.

Spot gold stabilized around $1,797 per ounce levels after falling by nearly seven percent in about a week. It hit a record $1,911 last week.

In terms of fundamentals, (gold) still looks good. The only risk to the downside is if the CME raises margin requirements again, Natalie Robertson, a commodities strategist at ANZ, told Reuters.

The CME Group raised margins on gold futures by about 27 percent last week.

German Bunds reversed early gains as European equity markets opened higher. German Bund futures briefly dipped into negative territory and were last 9 ticks higher at 134.48.

(Additional reporting by Atul Prakash in London)

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