(Corrects first para to say China is world's second biggest (not biggest) economy)
By Tom Wilson and Wayne Cole
LONDON/SYDNEY (Reuters) -Stocks and oil gained on Tuesday on hopes that public unrest in China might prompt an earlier loosening of COVID-19 curbs in the world's second biggest economy, with the yuan up and the dollar down as investor appetite for riskier assets grew.
The Euro STOXX 600 gained 0.4%, recovering from its worst session in almost two weeks a day earlier. Shares in London were up 0.8% and markets in Paris and Frankfurt gained around 0.2%-0.3%.
Hopes of faster easing of China's strict restrictions rose after an official said they will continue to fine-tune policy to reduce the impact of its "Zero COVID" on society.
Simmering discontent with Beijing's stringent COVID prevention policies three years into the pandemic ignited over the weekend into broader protests in Chinese cities thousands of miles apart.
"China is the dominant story in markets at the moment, and the pattern of risk assets that we have seen overnight is what we would expect with better news" said Hugh Gimber, global market strategist at JP Morgan Asset Management.
"Positive news for the Chinese economy is positive news for the global economy."
The MSCI world equity index, which tracks shares in 47 countries, rose 0.3%, while S&P 500 futures rose 0.5% and Nasdaq futures 0.7%.
The sudden bout of optimism on China combined with talk of possible output cuts by OPEC+ to help oil prices rally. [O/R]
U.S. crude futures bounced $1.53 to $78.78 a barrel, having hit their lowest this year overnight, while Brent climbed $1.83 to $85.12.
European government bonds rose as investors moved towards riskier assets, with the yield on the benchmark German 10-year Bund falling almost 9 basis points.
The dollar also fell 0.5% against a basket of currencies to 106.06, and shed 0.9% against the offshore yuan to 7.1830, erasing all the gains made on Monday.
Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan gained 1.8%.
Shares of Chinese property companies surged after the country's securities regulator lifted a ban on equity refinancing for listed property firms.
That helped Chinese blue chips jump almost 3%, in the largest one-day rally in a month and a marked reversal of Monday's steep falls.
HIGHER FOR LONGER
Richmond Federal Reserve Bank President Thomas Barkin became the latest official to douse speculation the U.S. central bank would reverse course on interest rates relatively quickly next year.
That heightened tensions ahead of speech by Fed Chair Jerome Powell on Wednesday that is shaping up to be a major messaging event as markets yearn for a pivot on policy.
Analysts suspect they may be disappointed.
"We envision him basically confirming a slower pace of hikes at the December meeting, which is almost entirely priced in," said Jan Nevruzi, an analyst at NatWest Markets. "But we also think he will reiterate that the Fed intends to stay in restrictive territory through next year."
The Fed is not alone in being hawkish, with European Central Bank President Christine Lagarde warning that euro zone inflation has not peaked and could go even higher.
The euro was 0.4% higher at $1.0385, having hit a five-month peak of $1.0497 overnight.
Spain's consumer prices in the year to November rose 6.8%, a slower pace than the 7.3% over the 12 months to October, preliminary data showed on Tuesday.
Spain's two-year bond yields fell 9.5 basis points to 2.310% on the data.
Figures for inflation in Germany are due later on Tuesday, ahead of the main euro zone report on Wednesday.
(Reporting by Tom Wilson in London and Wayne Cole in Sydney; Editing by Bradley Perrett, Kirsten Donovan)