World stocks pushed up to 9-month highs on Friday, cutting demand for government bonds as euro zone manufacturing and services reports beat expectations, fuelling optimism about economic recovery.

The euro hit a session high against the dollar and European shares reversed earlier losses to climb for a 10th session running after a better-than-expected German sentiment survey and improved data on the euro zone services and manufacturing sectors.

Generally all of these surveys are ticking higher .... it's confirming evidence that things look to have bottomed out, said Padhraic Garvey, head of Investment Grade Debt Strategy at ING in Amsterdam.

If we didn't have yesterday's selloff, we could have a bigger selloff this morning, he said of the euro zone government bond market.

Euro zone government bonds slid, with the September Bund futures down as much as 40 ticks to a session low of 120.15 -- a level last seen in June 25.

The pan-European FTSEurofirst 300 index rose 0.6 percent, while the MSCI index of world stocks was up 0.22 percent at its highest since October.

U.S. stock futures were up slightly in Europe.

The euro rose to a session high against the dollar of $1.4227, up 0.5 percent on the day.

The single currency also gained traction against sterling after figures showed Britain's economy shrank more than twice as fast as expected in the second quarter. [nLO44167]

Data on Thursday, showing a rise in U.S. jobless claims, dampened optimism about the pace of recovery for the world's biggest economy, which had been buoyed earlier this week by broadly stronger-than-feared corporate earnings.

Investors will be looking to Friday's release of the final July Reuters/University of Michigan consumer sentiment index for the next clues on the economic outlook.

Asian stocks hit a 10-month peak on Friday, with Hong Kong vaulting back to levels last seen before the collapse of Lehman Brothers last September as investors rushed into equities following upbeat corporate earnings around the world.

But gains were limited and higher-yielding currencies lost ground as some investors moved to book profits on the run-up this week, with some technical signals flashing warning signs that the risky asset surge may be due for a reversal.

Oil eased below $67 a barrel, reversing a near 3 percent surge to a three-week high Thursday, after a few late U.S. corporate results dented initially bullish sentiment.

Strong results from companies like 3M & Co and AT&T Inc and a rise in U.S. existing home sales in June gave a boost to the idea that the U.S. economy was on the road to recovery, but results from American Express, Microsoft Corp and Amazon.com Inc after the bell were less positive.

(Additional reporting by Ian Chua, editing by Mike Peacock)

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