By John Stonestreet
LONDON (Reuters) - World stock markets rose on Friday as they set the seal on a strong first quarter, with European shares extending early gains after euro zone ministers agreed to beef up the region's crisis-fighting funds.
But the backdrop was clouded across all asset classes by growth concerns centred on China, uncertainty about the strength of the U.S. recovery and fears that the reinforced firewall - together with injections of central bank money - may offer no more than a temporary fix for Europe's debt troubles.
"All the European (share) markets have broken below their 2012 trend channels ... Now, indices are getting close to March lows," Aurel BGC chart analyst Gerard Sagnier said.
"We'll have to wait for the consolidation phase, which has just started, to stabilise before going 'long' again."
The FTSEurofirst 300 rose 0.9 percent, ending a three-session slump and helping lift MSCI's all-country world index 0.5 percent for an 11 percent first-quarter gain.
Wall Street was also seen opening higher.
Shares extended gains after finance ministers meeting in Copenhagen raised the combined lending ceiling for the euro zone's two bailout funds.
That eased concerns that contagion from the debt crisis might envelop Spain - where bond investors were bracing for details of a tough budget - and Italy.
The euro also benefited, rising 0.3 percent against the dollar to $1.3345, closing in on a one-month peak of $1.3385 hit earlier this week.
The dollar fell to a one-month low against major currencies, pressured by quarter-end flows, a flurry of softer U.S. economic data and expectations of further monetary stimulus from the Federal Reserve.
But the initial market reaction to the news from Copenhagen was also tinged with scepticism, with the increase in the lending ceiling - to 700 billion euros from 500 billion - smaller than some had hoped.
"The key question is whether this new firepower is enough," said Steve Barrow, head of G10 strategy at Standard Bank in London. "Clearly if things turn down again, and especially if more bailouts are needed, the tricky issue of underfunding ... relative to the potential bailout need is bound to resurface."
PAIN IN SPAIN
For now at least, the firewall boost will offer welcome relief for Spain.
The country is firmly back at the sharp end of the euro zone debt crisis and kept bond markets subdued on Friday in anticipation of a budget encapsulating the problems the euro zone faces in slashing public deficits during an economic slump.
Feeling mounting pressure from markets amid popular resistance to more austerity, the government in Madrid has flagged deep spending cuts, increasing concerns that the belt-tightening demanded by the EU will only push the economy deeper into recession.
"We think that making (fiscal) ends meet will be challenging, though not impossible," Morgan Stanley said in a research note. "We expect the Spanish economy to shrink by 2 percent this year."
Yields on 10-year Spanish bonds were down 3.9 basis points at 5.44 percent, while the equivalent for fellow euro zone struggler Italy was 4.3 bps lower at 5.2 percent.
The German Bund future eased back slightly to 138.16 and U.S. Treasuries were steady.
Further clues to the economic mood across the Atlantic were expected later in the day from the Chicago PMI index ahead of next week's nationwide sentiment data.
"(The) Chicago PMI may set the tone for the national ISM next week," said Chris Turner, chief currency strategist at ING.
"Overall, we expect quiet range-trading into quarter-end, but continue to favour a 'buy the U.S. dollar on dips' strategy - as U.S. growth stabilises and major trading partners try to engineer weaker currencies."
Brent crude rose back above $123 as investors bet on a tighter U.S. gasoline market during the peak summer driving season and on persistent worries of supply disruptions in the Middle East.
Front-month Brent crude rose 0.65 percent to $123.21 a barrel, recovering from its sharpest daily fall in more than three weeks.
Oil had tumbled in the past two sessions on growing talk of a release of strategic petroleum reserves by some consumer nations, and a surge in U.S. crude inventories.
(Additional reporting by Anirban Nag, Jessica Mortimer and Ana Nicolaci da Costa in London and by Blaise Robinson in Paris; Editing by Catherine Evans)