* U.S., European stocks rise on increased M&A activity
* Crude oil rises toward $67 a barrel on economic optimism
* Yen comes off 8-month high versus dollar; euro slips
* Longer-dated bonds rise on benign inflation outlook (Updates with close of U.S. markets)
By Herbert Lash
NEW YORK, Sept 28 (Reuters) - Global stocks and oil rose on Monday as news of several billion-dollar takeover offers boosted confidence in a global recovery and led investors to wade back into riskier assets after last week's sell-off.
The U.S. dollar dropped for a third session versus the Japanese currency, sliding below 89 yen at one point, after comments by Japan's finance minister raised speculation the new government was unlikely to intervene to weaken its currency.
Oil rose more than 1 percent toward $67 a barrel as equity markets jumped and news emerged that Iran was test-firing missiles. For details see: [ID:nSYD437262].
U.S. stocks snapped a three-day losing streak and European shares broke two days of losses on increased merger and acquisition activity, which is considered bullish as it suggests companies are optimistic about the economic outlook. [ID:nN2869023] [ID:nLS288087]
Abbott Laboratories
"It's always a positive sign when you see companies putting money to work, whether they buy other companies, invest in new plants, (or) buyback their own stock," said Tim Smalls, head of U.S. stock trading at brokerage firm Execution LLC in Greenwich, Connecticut.
The Dow Jones industrial average <.DJI> closed up 124.17 points, or 1.28 percent, at 9,789.36. The Standard & Poor's 500 Index <.SPX> gained 18.60 points, or 1.78 percent, at 1,062.98. The Nasdaq Composite Index <.IXIC> jumped 39.82 points, or 1.90 percent, at 2,130.74.
The yen later gave up most gains after Japanese Finance Minister Hirohisa Fujii told Dow Jones newswires it was wrong to see his comments as a license to push the yen higher.
"The comments by the finance minister seemed to be an open door to people who were bullish on the yen," said David Watt, senior currency strategist at RBC Capital Markets.
The dollar was up against a basket of major currencies, with the U.S. Dollar Index <.DXY> up 0.23 percent at 76.988.
The euro
Oil gained as M&A activity bodes well for the economy and increased energy demand.
Iran test-fired a type of missile which defense analysts said could hit Israel and U.S. bases in the Gulf region, Iranian state television reported. [ID:nN25267865]
U.S. crude
U.S. 30-year Treasury bonds extended their gains, rallying more than a point in price as investors remained heartened by last week's assurances that the Federal Reserve will preempt inflation before it takes off.
The benchmark 10-year U.S. Treasury note
Bets that inflation will remain low, spurred by German consumer price data and comments by the European Central Bank president, helped longer-dated U.S. and euro zone government debt to rise.
"There's no inflation, and people are catching on to that," said Glen Capelo, co-head of rates at BroadPoint Capital in New York.
Germany's consumer price index fell a faster-than-expected 0.3 percent annually in September, while the ECB's Jean-Claude Trichet said inflation is expected to remain subdued over the medium term. [ID:nBAF001802][ID:nLS314160]
The 10-year Bund yield
Gold futures rose toward $1,000 an ounce as a wave of economic optimism prompted investment inflows into asset classes across the board, bolstering the status of gold as a hedge against inflation. [ID:nN28540926]
December gold futures
Copper steadied by the close, as a rally in equities helped offset concerns about rising inventories, falling Chinese imports and weak demand in western countries. [ID:nLS209046]
Copper for December delivery
The Nikkei share average <.N225> shed 2.5 percent to hit a two-month low and briefly fell below the 10,000 line.
The MSCI benchmark of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> fell 1.3 percent, while the Thomson Reuters index for regional shares <.TRXFLDAXPU> shed 1.4 percent.
(Reporting by Ellis Mnyandu, Wanfeng Zhou, Edward McAllister and Richard Leong in New York; Dominic Lau and Ian Chua in London; writing by Herb Lash; Editing by Andrew Hay)