World stocks and the euro rose on Friday after a bigger-than-expected rise in Germany's key corporate sentiment survey, while better earnings from several regional U.S. banks also boosted investor morale.

The low-yielding yen hit a 4-week high against the dollar, weighed by nervousness surrounding the looming outcome of the U.S. government's stress tests on 19 major domestic banks, due on May 4. The Ifo Institute's business climate index rose to 83.7 in April, against a consensus for a rise to 82.3, from 82.2 in March.

The focus is also on banks after big U.S. regional banks, including PNC Financial Services Group

and Fifth Third Bancorp , reported better-than-expected first-quarter earnings on Thursday.

Earnings results have been so far mixed with investors reacting more sensitively to positive earnings reports. In Europe so far, 30 companies in the DJ Stoxx 600 index <.STOXX> have reported their earnings, of which 18 beat estimates and 12 missed forecasts.

The cyclical stocks will continue to benefit from less weak economic conditions than people feared, said Darren Winder, equity strategist at Cazenove.

The defensive stocks are also attractive (after recent falls), so the market should get more breath. If it gets more breath it will help its advance.

MSCI world equity index <.MIWD00000PUS> rose 0.6 percent on the day, while the FTSEurofirst 300 index <.FTEU3> extended gains after the Ifo survey to stand up 0.8 percent.

Emerging stocks <.MSCIEF> rose half a percent.

U.S. crude oil rose 0.4 percent to $49.86 a barrel.

The June bund futures was steady on the day.

The euro rose 0.8 percent to $1.32519, hitting the session high after the Ifo survey.

The yen, which tends to attract safety-seeking flows, hit a 4-week high of 96.65 per dollar with investors nervous about the result of the U.S. stress tests.

Though the end of the stress test process is supposed to bring much needed transparency, we fear that the cyclical rise in defaults will cause painful losses - given the unprecedented rise in the banks' balance sheet over the past 10 years - which the stress test is likely to highlight, Societe Generale said in a note to clients.

The dollar fell half a percent <.DXY> against a basket of major currencies.

(Additional reporting by Dominic Lau; editing by Chris Pizzey)

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