World stocks climbed for the third day in a row on Tuesday as investors bet governments would succeed in ending the credit crisis.

The euro hit 1-1/2 year lows against the dollar. Sentiment was boosted overnight by comments from US Federal Reserve chairman Ben Bernanke, who backed government spending as a fresh measure to boost the US economy.

Interbank lending rates were also fixed lower on Monday, fuelling a belief that government rescue plans were beginning to free up frozen money markets.

MSCI's all-country world stock index, a broad measure of global stock market performance, rose for the third trading day in a row and was nearly 12 percent above five year lows hit on Oct 10.

It remains down 39 percent year-to-date, however.

"The market wants some kind of concrete economic steps, jointly if necessary, and Bernanke's comments have raised hopes that something will be forthcoming," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management in Japan.

European shares rose in early trade, also extending their winning streak to a third day, with investors cheered by Bernanke and French government moves to bolster its banks.

France announced plans late on Monday to lend 10.5 billion euros ($14.12 billion) to the country's top six banks before the year end to prop up their capital reserves.

The FTSEurofirst 300 index of top European shares was up about 0.7 percent with banks among the top gainers. BNP Paribas jumped 6.5 percent, Societe Generale soared 9.2 perent and Credit Agricole rose 7.8 percent.

Earlier, the Nikkei average rose 3.3 percent or 300.66 points to 9,306.25. The broader Topix rose 3.2 percent to 956.64.

The euro fell to its lowest in 1-1/2 years against a broadly firmer dollar, with the US currency  benefiting from ongoing funding demand. The euro traded at $1.3256, having hit a low of $1.3237 -- last seen in March 2007.

"General dollar strength is continuing, which is pushing the euro and sterling lower this morning," said Stephen Koukoulas, currency strategist at TD Securities.

On fixed income markets, euro zone government bond yields were flat. Overnight dollar London Interbank Offered rates were fixed lower on Monday at 1.51250 percent versus 1.66875 percent on Friday, while one-week and three-month dollar Libor were both around 43 basis points down at 2.71875 percent and 3.75125 percent, respectively.

"Things are calming down," said one trader. - Reuters