World stocks hit a three-week high on Thursday and turned positive for the year as rising oil prices gave energy firms a shot in the arm that countered the effects of increased political uncertainty.

Brent crude rose to another 3-1/2 year high of $77.89 overnight amid fears of supply disruptions after President Donald Trump withdrew the United States from a nuclear accord with Iran and ordered sanctions to be reimposed.

The dollar meanwhile eased slightly from 2018 highs ahead of US April inflation numbers later on Thursday and as currency markets eyed the Bank of England's policy meeting and inflation report.

“It's difficult to know what the principal drivers are given there's a whole host of events, but it could well be that the effect of oil prices on resources companies is outweighing negatives elsewhere,” said Investec economist Philip Shaw.

“But I think the main thing the market is looking out for is whether growth in the global economy has peaked and is slowing down,” he said, citing reduced growth data in the euro zone and Britain as examples.

MSCI world equity index

Energy shares led Asian stock indexes higher, pushing the 47-country MSCI world equity index to its highest level in three weeks. It is now positive on the year, up 0.3 per cent from its starting level on January 1.

European shares largely took their cues from Asian and US peers and rose, but the gains were tempered as British phone company BT reported disappointing results and the pan European STOXX 600 Index was only marginally higher.

BoE policy meeting

Britain's FTSE 100 Index was still up on the day ahead of a Bank of England policy meeting at which rates are expected to be kept on hold, a sea change from expectations a few weeks ago, when a hike seemed nailed on.

Overall, the US Federal Reserve remains the only major central bank that appears to be on course for rate hikes, with New Zealand's Reserve Bank saying it will keeping the Official Cash Rate (OCR) at 1.75 percent “for some time to come”.

The New Zealand dollar retreated to a five-month low of $0.6915.

Political ructions

Italian government debt sold off sharply in early trades, with 10-year yields hitting a seven-week high as Italy's 5-Star Movement and the far-right League moved closer to the formation of a government of anti-establishment parties.

A crucial obstacle was removed late on Wednesday when former prime minister Silvio Berlusconi, the League's main ally, gave his green light to the talks, accepting a demand from 5-Star that his Forza Italia party take no part in the next government.

Nor is this the only electoral concern on investor minds today; in Malaysia, an alliance of Opposition parties spearheaded by Mahathir Mohamad won the general election, putting the 92-year old strongman on course for a return to the prime minister's office he occupied for 22 years.

Over the past day the Malaysian ringgit has slid nearly 3 per cent in the one-month non-deliverable forward market and the cost of insuring the country's debt against default has risen.

Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.6 per cent, while Japan's Nikkei climbed 0.3 per cent. South Korea's KOSPI rose 0.5 percent and Shanghai SSEC was 0.2 per cent higher.

Brent crude futures were up 0.8 per cent to $77.66 a barrel, the highest since November 2014 and building on gains of about 3 per cent on Wednesday. US light crude futures were up 0.6 per cent at $71.59.

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