World stocks hit their highest in more than a year and the dollar fell against the yen on Wednesday as expectations of a rise in Federal Reserve interest rates receded after weak US economic data.

Wall Street looked set to open flat to slightly lower, according to index futures.

Emerging market shares led the charge, touching their strongest levels since July 2015 as investors sought returns with interest rates likely to stay low for a prolonged period.

European shares reversed early losses. The Stoxx 600 index edged up 0.1 per cent towards eight-month highs hit on Monday, led by a rise of almost 1 per cent in oil and gas shares .

Oil prices rose even though many market participants remained doubtful producers would reach a deal to freeze output.

Banks, for whom rock-bottom interest rates promise tough times, initially fell before turning slightly positive.

Euro zone government bond yields fell as some investors bet the weak US data, which followed weaker-than-expected jobs numbers on Friday, would pressure the European Central Bank to ease monetary policy further. The ECB meets on Thursday.

"With a September rate hike looking less likely to happen, the ECB might be more pressured to come up with a decision this week on further measures," said Benjamin Schroeder, senior rates strategist at ING.

In Asia, MSCI's main Asia-Pacific stock index, excluding Japan was up 0.2 per cent, having earlier touched its highest since July last year. This helped lift MSCI's all-country world index to its highest since August 2015.

"When people think there's no immediate rate hike from the Fed, then Asia and emerging markets are the place to go to, as investors seek yields," said Toru Nishihama, senior economist at Dai-ichi Life Research.

Japan's Nikkei index, however, retreated 0.4 per cent as a strong yen hurt exporters.

DOLLAR, OIL

The dollar was last down 0.4 per cent at 101.56 yen, having fallen as low as 101.18, its weakest since Aug. 16.

The dollar fell 1 per cent against several major currencies on Tuesday after Institute for Supply Management data showing activity in the US service sector slowed to a 6-1/2-year low in August and diminished the already slim prospects for a Fed rate hike this month.

The dollar index, which measures the greenback against a basket of major currencies was flat. The euro was down 0.1 per cent at $1.1242.

Sterling, which topped $1.34 for the first time in seven weeks on Tuesday after the ISM data, pulled back 0.5 per cent to $1.3376 after British manufacturing output fell 0.9 per cent in July, its biggest drop in a year.

The data was the first to cover output solely for the period after the June 23 vote to leave the European Union.

"Sterling has been lifted in recent weeks by very strong data, but this output data shows it's been a pretty mixed bag following the referendum," said Societe Generale currency strategist Alvin Tan.

The Swedish crown rose around 0.2 per cent to 9.52 per euro after the Swedish central bank kept interest rates unchanged as expected.

Oil prices, which have been on a rollercoaster in recent days as expectations of whether a deal to curb a global glut can be reached have waxed and waned, edged up.

Brent crude, the international benchmark, gained 52 cents to $47.78 a barrel. It rose as high as $49.40 on Monday, having fallen to $45.32 on Sept. 1.

The reduced expectations of a Fed hike also lifted other commodities. Copper hit a two-week high at $4,688 a tonne, while gold touched a 2 1/2-week peak above $1,352 an ounce before pulling back. – Reuters