By Barani Krishnan NEW YORK, Oct 12 (Reuters) - Stocks on major world exchanges hit three-week highs on Wednesday while the euro rose to its highest in a month as investors bet Slovakia would reach a deal to expand the euro zone's rescue fund. Brent crude oil rallied for a third straight dayalthough a sharp sell-off in grainspushed the Reuters-Jefferies CRB index down 0.2 percent. U.S. Treasuries continued Tuesday's downdraft as fewer investors took to safe-haven bonds amid the growing appetite for risk.Gold's safety appeal cooled off some, with spot bullion trading around $1.675 an ounce, off its earlier intraday high above $1,691. On Wall Street, stocks climbed more than 1 percent, extending the rally across Europe. "It's like 'no bad news.' We get to go up as long as you don't see any horror stories," said Frank Lesh, a futures analyst and broker at FuturePath Trading LLC in Chicago. "At the moment, it appears as if Europe has at least contained the crisis." Slovakia is the last country in the 17-member euro zone that still needs to approve a plan to strengthen the currency zone's rescue fund. Parties in the outgoing Slovak government began talks with the opposition to reach a deal on ratifying the plan. German Chancellor Angela Merkel weighed in, saying she expected full ratification by the European Union summit on Oct. 23. Investors are also looking to the European Union to announce a bank recapitalization plan, which is due later on Wednesday and is designed to cushion the impact any default by Greece could have on the region's banks. "Markets are clearly still hoping for a comprehensive plan to tackle the (euro zone) debt crisis. This may continue to support the market over the next couple of months," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets. The euro extended gains after surprisingly strong data on the euro zone's August industrial output and as traders exited short positions against the single currency. The euro rose 1.2 percent against dollar to $1.38 after it broke an options barrier at $1.3700, which took it through a series of stop-loss entry orders above that. It touched a high of $1.38179 on the EBS trading platform, its strongest since Sept 16. It also rallied against the yen , up 1.9 percent at 106.54 yen, the highest since Sept 15. The Dow Jones industrial average was up 121.43 points, or 1.06 percent, at 11,537.73. The Standard & Poor's 500 Index was up 16.42 points, or 1.37 percent, at 1,211.96. The Nasdaq Composite Index was up 33.44 points, or 1.29 percent, at 2,616.47. Financials were among the best performers on Wall Street, with the KBW Bank index up 3 percent. JPMorgan Chase & Co gained 2.2 percent to $33. In contrast, Alcoa Inc dropped 3.2 percent to $9.97, after falling nearly 5 percent earlier in the session. The No. 1 U.S. aluminum producer was one of the biggest drags on the Dow after its earnings, which were released after Tuesday's closing bell. Alcoa reported its third-quarter profit was lower than the second quarter and fell short of already reduced expectations due to a decline in global metals prices. The MSCI world equity index gained 1.6 percent to 298.61, its highest since Sept. 19. The benchmark index is nearly 13 percent above a 15-month low hit just a week ago. The broad FTSEurofirst 300 index of European stocks rose 1.5 percent to close provisionally at a nine-week high of 975.81 points. In the U.S. Treasury bond market, investors unloaded bonds against the backdrop of the increased appetite for stocks and other risky assets -- and ahead of the auction at 1 p.m. of $21 billion in reopened 10-year notes. The 10-year note fell 20/32 in price, to yield 2.22 percent, up from 2.208 percent at Tuesday's close. The 30-year bond lost 2 full points, yielding 3.20 percent, up from 3.19 percent on Tuesday.

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