By Jeremy Gaunt, European Investment Correspondent
LONDON (Reuters) - World stocks put in solid gains on Monday as investors bet on a positive outcome to the euro zone crisis talks and took comfort from signs that China's economy may not be in as much danger as feared.
The euro was flat to higher and the dollar was weaker against a basket of major currencies.
Investors appeared to be giving euro zone leaders the benefit of the doubt in their attempts to reach a comprehensive agreement on fixing the euro zone debt crisis.
Some progress was made in Brussels over the weekend, with agreements near on bank recapitalization and on how to leverage the European Union's EFSF rescue fund to try to stop bond market contagion.
But final decisions were deferred until a second summit on Wednesday and sharp differences remain over the size of losses private holders of Greek government bonds will have to accept.
"We're still waiting for the comprehensive crisis plan and divisions remain, but it looks like we're getting close to the deal on EFSF leveraging and bank recapitalization," said a senior trader at a major Japanese bank.
Perhaps equally of importance to investor sentiment was a rise in China's flash purchasing managers' index, suggesting that manufacturing in the world's second-largest economy expanded moderately in October after three months of contraction.
This will have eased fears that China's economy is heading for a hard landing, one of the major concerns for global investors along with the euro zone crisis and the slowdown in the United States.
MSCI's all-country world stock index was up 0.8 percent, with emerging market shares climbing 2.6 percent.
The pan-European FTSEurofirst 300 <.FTEU3> gained 0.6 percent. Earlier, Japan's Nikkei <.N225> added 1.9 percent.
The euro briefly rose to a six-week high versus the dollar on the rising optimism over EU policymakers' plans.
It was later flat at around $1.3900. This compares with a nine-month low plumbed earlier this month at $1.3145 and traders said it was likely to keep its positive tone at least until the next summit.
The strong Japanese yen, meanwhile, is causing some concern for Japanese officials.
Finance Minister Jun Azumi said on Monday that Japan will take decisive action on excessive and speculative forex moves. He said that the dollar below 76 yen did not reflect economic fundamentals.
The bond market did not seem as positive about the chances of a euro zone agreement as other markets, with German Bund futures reversing losses.
"People are getting increasingly nervous that (the next EU summit) won't deliver," a trader said.
(Additional reporting by Emelia Sithole-Matarise; Editing by Catherine Evans)