World stocks rose for a second day in a row on Wednesday as improving economic data in Asia and a weak dollar pushed oil to a fresh 7-month high above $71 a barrel, fuelling gains in resource-related stocks.

Two Chinese newspapers reported that factory output in China rose in May at the fastest pace since September last year. If confirmed by official figures on Friday, this would be a major positive surprise. In Australia, a key measure of consumer confidence posted its biggest monthly rise in 22 years.

Signs that the global economy is gradually emerging from the downturn are fanning expectations that demand for energy and commodities will recover, which would help to boost profits in resource-related stocks.

For now investors are choosing to believe that their glass is half full, not half empty and the recovery in share prices is continuing, said Jeremy Batstone-Carr, strategist at Charles Stanley. MSCI world equity index <.MIWD00000PUS> rose 1.2 percent, edging closer to a 7-1/2 month high set last week.

The FTSEurofirst 300 index <.FTEU3> rose 1.6 percent. European banking stocks got support after the U.S. Treasury said on Tuesday 10 big banks will repay $68 billion received under the Troubled Asset Relief Program, or TARP, to the government.

Shares in developing Asia <.MIAPJ0000PUS> rose more than 3 percent while emerging stocks <.MSCIEF> rose 2.3 percent.

U.S. crude oil rose as high as $71.36, driven by a weaker dollar, an American Petroleum Institute report showing a larger-than-expected drop in crude oil stocks and a forecast by the U.S. Energy Information Administration that falling oil demand may have bottomed.

Oil has more than doubled from the low $30s hit in December, although prices are still more than 50 percent below a record high of $147.27 hit last July.

The dollar <.DXY> fell 0.3 percent against a basket of major currencies as doubts grew about the timing of a possible move by the Federal Reserve to raise interest rates.

The currency surged last week after stronger-than-expected U.S. jobs data triggered expectations that interest rates might rise soon. The benchmark 10-year U.S. yield spiked to seven-month highs earlier this week as investors dumped government bonds.

The June Bund futures fell 28 ticks in Europe.

The problem at the heart of the credit crisis... has not disappeared. Instead, much of the burden has been transferred from the private to the public sector. As a consequence, government borrowing is surging, Dirk Wiedmann, head of investments at Rothschild Private Banking & Trust, said in a note.

We recommend an underweight position in fixed income. We see no compelling reason to hold government bonds: demand is falling as the economic data improve and supply is rising as the public finances deteriorate.

(Additional reporting by Simon Falush; editing by David Stamp)

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