* Stocks rise as fear of Mideast, other tensions subside
* Euro flat as monetary policy trumps Merkel party loss
* Oil slips as Libyan rebels advance (Adds opening of U.S. markets, byline; dateline previously LONDON)
By Herbert Lash
NEW YORK, March 28 (Reuters) - The euro was flat against the dollar on Monday as expectations that the European Central Bank will raise interest rates as early as next month softened concerns after German Chancellor Angela Merkel's party was routed in elections, while U.S. equity markets rose in a sign the economic outlook outweighed any political headwinds.
Oil prices retreated, with both U.S. and Brent crude down after rebels regained control of key oil towns in Libya. For details see: [ID:nL3E7ES07Y]
North Sea Brent for May delivery
Soaring radiation levels at a damaged nuclear plant in Japan and flaring violence in the Middle East could still pressure markets but the headlines haven't been strong enough to snuff the appetite for risk assets.
"Markets are still very conscious of what's going on in Japan and the Middle East," said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co in New York. "But people are feeling more constructive given how well the market has been able to withstand bad news."
Wall Street opened higher and major stocks indexes in Europe also rose slightly.
The Dow Jones industrial average <.DJI> was up 38.78 points, or 0.32 percent, at 12,259.37. The Standard & Poor's 500 Index <.SPX> was up 4.05 points, or 0.31 percent, at 1,317.85. The Nasdaq Composite Index <.IXIC> was up 5.40 points, or 0.20 percent, at 2,748.46.
The loss by Merkel's party in Baden-Wuertemberg, which the conservatives had held for nearly six decades, led markets to bet the chancellor will have less leeway to shore up financially stricken members of the single currency bloc.
But expectations of a euro-zone interest rate rise continue to offset worries about heavily indebted Portugal and Spain.
President Jean-Claude Trichet of the European Central Bank said inflation rates are durably above its price stability target. [nWEA1186][ID:nLDE72Q0E6]
The euro erased losses after Trichet's comments and was last trading flat on the day at $1.4074 after sliding as much as 0.3 percent lower on the back of concerns about Chancellor Angela Merkel's loss. The euro, nevertheless, is off a 4-1/2 month high of $1.4249 hit last week on EBS.
"The effect should be seen in less freedom for the German government to take unpopular political stands, such as in nuclear power and economic assistance to periphery countries," Brown Brothers Harriman said in a note. "This does not bode well for the periphery, in light of near term issues with Ireland and Portugal."
Gold fell more than 1 percent, briefly dipping below $1,410 an ounce, as fear about unrest in the Middle East petered out.
Spot gold
U.S. Treasuries widened early losses after the government reported February data on personal income, spending and prices, and as traders marked down prices ahead of supply. [ID:nN28308824]
The benchmark 10-year U.S. Treasury note