GLOBAL MARKETS-Investors buy stocks, sell bonds on economy hopes

* Wall St rises more than 1 pct; Treasuries sell off

* Dollar rises on back of higher Treasuries yields

* U.S. yield curve steepest on record

By Walter Brandimarte

NEW YORK, Dec 21 (Reuters) - Optimism about the economic recovery on Monday encouraged investors to buy stocks and dump U.S. Treasuries, while gold prices fell as investors expected the dollar to remain firm in the beginning of the new year.

Expectations that the U.S. economy is reviving drove the dollar to more than a six-week high against the yen and kept it near its strongest level against the euro in three months.

The price of oil rose on concerns about the security of energy facilities in Iraq and Nigeria and as cold weather on both sides of the Atlantic increased fuel demand.

Shares of energy companies rose with the higher oil prices.

Merger and acquisition activity drove up stocks in both the United States and Europe, and the signs of a recovering economy bolstered markets.

The pan-European FTSEurofirst 300 index closed up 1.5 percent, and the three major U.S. indexes gained more than 1 percent.

"Some of the laggard fund managers need to put more equity in their portfolios," said Heino Ruland, strategist at Ruland Research, in Frankfurt. "Some of us missed the boat.

"There's no news out that would justify this sort of rise (today), and it's on low volume. I think the rally will go further. The economic recovery in the third quarter was strong, and it will also be in the fourth quarter."

The pan-European FTSEurofirst 300 index <.FTEU3> jumped 1.4 percent to 1,027.87 points, after two consecutive sessions of losses, buoyed by energy shares.

The Dow Jones industrial average <.DJI> rose 119.49 points, or 1.16 percent, to 10,448.38, while the Standard & Poor's 500 Index <.SPX> gained 14.74 points, or 1.34 percent, to 1,117.21. The Nasdaq Composite Index <.IXIC> was up 29.62 points, or 1.34 percent, at 2,241.31.

Health-care shares stood out, with the Morgan Stanley Health Payor index <.HMO> up more than 3 percent, after the U.S. Senate advanced health-care legislation that had been stripped of provisions deemed detrimental to insurers and other health-related companies. For details, see [ID:nN21199371].

Aluminum producer Alcoa rose 8.1 percent after announcing a joint venture to build an aluminum complex in Saudi Arabia, and on a Morgan Stanley upgrade.

Stocks gained globally, with the MSCI all-country world stock index <.MIWD00000PUS> up 1.0 percent.

Investors have been cautiously optimistic about retail sales during this holiday season, after higher-than-expected jobs and producer inflation data last week were seen as a sign that the economy is recovering.

"We have an economy that is recovering, and we have a Federal Reserve that says they are going to keep rates lower for longer," said James Caron, co-head of global rates research at Morgan Stanley in New York.

US YIELD CURVE STEEPENS

U.S. Treasury debt prices fell, with the 30-year bond down more than a full point as investors looked to riskier assets. Bets that the U.S. Federal Reserve will have to raise interest rates in the future caused spreads between yields on two-year and 10-year U.S. Treasury notes to widen sharply on Monday, taking the yield curve to its steepest on record.

The yield spread between those two maturities widened to 280 basis points from 274 basis points last week, according to Reuters data.

Also weighing on Treasuries prices were worries about an expected massive wave of government debt issuance next year. Trade volume was thin at the beginning of a holiday-shortened week, exacerbating price moves, analysts said.

The benchmark 10-year U.S. Treasury note was down 23/32, with the yield at 3.6322 percent, up from 3.54 percent late on Friday. The 2-year U.S. Treasury note was down 3/32, with the yield at 0.8395 percent from 0.80 percent.

Higher Treasury yields, coupled with expectations that the U.S. economy might be recovering faster than expected, led the U.S. dollar to strengthen 0.71 percent against the Japanese yen , to 90.94. The dollar earlier climbed as high as 91.01 yen ,according to Reuters data, the highest level since early November.

The euro was down 0.15 percent at $1.4319 per greenback. But the U.S. Dollar Index <.DXY>, which compares the dollar against a basket of major currencies, was only 0.04 percent higher.

Expectations that the U.S. dollar will hold its gains through the beginning of the new year caused spot gold prices to fall $11.35, or 1.02 percent, to $1100.70.

U.S. crude oil rose 0.38 percent to $73.64 per barrel, partially due to concerns about the security of oil installations in Nigeria, where militants attacked an oil pipeline for the first time since an amnesty offer. [ID:nLDE5BI02S]

Cold weather in the United States and the expiration of January crude contracts also pressured prices, traders said.

The Reuters/Jefferies CRB Index <.CRB> of commodity futures was up 0.07 points, or 0.03 percent, at 276.21. (Additional reporting by Chris Reese, Ryan Vlastelica, Wanfeng Zhou; Editing by Leslie Adler)