World stocks edged toward last week's 30-month high on Monday as China's shrinking trade surplus underscored its robust domestic demand and talk of slower-than-expected inflation eased policy tightening concerns.

China's trade surplus fell to its lowest in nine months in January after imports surged, highlighting China's massive appetite for raw materials. Solid export growth also hinted at solidifying recoveries in the U.S. and European economies.

Traders said that China's consumer prices may have risen as little as 4.9 percent in the year to January, well below the consensus forecast of 5.3 percent. The official data will be announced on Tuesday.

This eased concerns that China's central bank would have to raise interest rates aggressively.

The talk of the Chinese inflation data and the export and import data is going to boost the market, Heino Ruland, strategist at Ruland Research in Frankfurt said.

Inflation has been the major worry and there has been a fear of monetary overkill, but until the data is released (on Tuesday) we could see a bit of volatility in the market.

The MSCI world equity index <.MIWD00000PUS> rose 0.3 percent, having hit its highest level since Aug 2008 last week.

Thomson Reuters' global stock index <.TRXFLDGLPU> gained half a percent.

The FTSEurofirst 300 index <.FTEU3> rose 0.6 percent to hit a 29-month peak.

Emerging stocks <.MSCIEF> added 1.4 percent. Shanghai stocks <.SSEC> hit an eight-week high, scoring the index's biggest single-day percentage gain since mid-December.

U.S. crude oil fell 0.4 percent to $85.28 as tension in the Middle East dissipated following the resignation of Egyptian President Hosni Mubarak last week.

YIELD SUPPORT FOR DOLLAR

The euro fell to a three-week low of $1.3461, while the dollar <.DXY> rose 0.15 percent against a basket of major currencies.

The dollar has been supported by rising U.S. yields, which hit their highest in nearly 10 months last week.

As long as U.S. yields hold current high levels it is hard to oppose dollar gains, Lloyds TSB said in a note to clients.

But it is questionable how sustainable the current level of US yields is with a dovish (Federal Reserve) stance, and the dollar typically struggles to find much traction in a 'risk on' world.

The bund futures were steady on the day ahead of a bond auction by Italy.

Analysts expect the sale to go smoothly despite a resurgence of concerns about the debt loads of a number of euro zone economies after prices for the bond Portugal placed in a syndicated sale last week fell in the secondary market.

European finance ministers will discuss on Monday how to give their euro zone rescue fund more flexibility and firepower and how to tackle debt crises after 2013, but final decisions are unlikely before March.

(Additional reporting by Joanne Frearson; editing by Patrick Graham)

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