GLOBAL MARKETS-Stocks rise on Japan and M&A, volatility slips

* Euro above $1.42 on rate hike expectations

* Wall Street stocks boosted by AT&T's T-Mobile deal

* U.S.-traded Nikkei futures up 3.6 percent

* VIX posts largest daily drop since May (Updates to U.S. markets' close)

By Rodrigo Campos

NEW YORK, March 21 (Reuters) - Global stocks rose on Monday as risk appetite returned after Japan had some success controlling a crippled nuclear plant, while the yen slipped on speculation of further market intervention.

Japan's markets were closed for a holiday, but the MSCI index of Asian stocks outside of Japan <.MIAPJ0000PUS> rose 1.35 percent and U.S.-traded Nikkei futures gained more than 3 percent for a third straight session.

The yen fell on investor concerns over more coordinated actions by the world's major central banks to weaken the Japanese currency following last week's intervention by the Group of Seven.

Oil prices were higher as unrest in the Middle East intensified concerns about potential threats to the region's oil supply and U.N.-mandated air strikes kept OPEC-member Libya's output reduced. For details see [ID:nL3E7EK0J3].

But in a sign U.S. stock markets were returning to normal after Japan's earthquake, tsunami and nuclear crisis, Wall Street's so-called fear gauge posted its largest daily percentage drop since May.

U.S. stocks closed 1.5 percent higher as investors welcomed AT&T Inc's $39 billion offer to buy T-Mobile USA from Deutsche Telekom in what would be the world's biggest deal this year and Germany's biggest in a decade.

"The market has been really volatile and it will continue to be really volatile. The AT&T deal is just a piece of it, the other is a sense there is some better news out of Japan and things haven't gotten any worse in Africa," said Gail Dudack, chief investment strategist at Dudack Research Group in New York.

The Dow Jones industrial average <.DJI> gained 178.01 points, or 1.5 percent, to 12,036.53. The Standard & Poor's 500 <.SPX> added 19.18 points, or 1.5 percent, to 1,298.38. The Nasdaq Composite <.IXIC> gained 48.42 points, or 1.83 percent, to 2,692.09.

The third day of gains in U.S. stocks followed two weeks of losses over concerns about unrest in oil-producing North Africa and the Middle East.

"The effects on oil from Libya to the US are very modest, if (any) at all," Dudack said. "The Saudis are making up the difference (in output) so it comes down more to politics than economics in Libya."

Experts said Japan's reconnection of power to its earthquake-damaged reactors is a major step in managing its nuclear crisis, but two smoking reactors and worries about food safety showed the crisis was far from over. For details, see [ID:nL3E7EL17R]

Investors were concerned how a struggling Japanese economy could affect the global recovery, and volatility was expected in the coming days.

Japanese equities got a boost after billionaire investor Warren Buffett said the earthquake was the kind of extraordinary event that creates a buying opportunity for shares in Japanese companies. [ID:nTOE72I00I]

U.S. dollar-denominated Nikkei futures rose 3.2 percent, pointing to a higher stock market open on Tokyo on Tuesday. The futures have gained 11.8 percent in the last three sessions.

The FTSEurofirst 300 <.FTEU3> index of top European shares rose 1.75 percent to hit a one-week high and the MSCI world share index <.MIWD00000PUS> jumped 1.58 percent, the largest daily gain in seven weeks.

The CBOE volatility index <.VIX> tumbled 15.7 percent in its largest daily percentage drop since last May.

YEN SLIPS, EURO HITS 4-MONTH HIGH

The yen slipped with speculators wary of more coordinated actions by central banks after joint G7 intervention last week. The U.S. dollar rose 0.3 percent for the day to 81.06 yen .

The euro rose 0.3 percent, trading above $1.42 against the U.S. dollar for the first time since November as markets braced for a euro zone interest rate hike as soon as next month.

A measure of the greenback against a basket of major currencies fell to its lowest in more than 15 months.

Libya Graphics

http://link.reuters.com/neg68r

Japan disaster in figures

http://r.reuters.com/ser58r

Japan disaster Top News page

[nTOPNOW4]

Picture, graphic packages:

http://r.reuters.com/wyb58r

OIL RISES, TREASURIES YIELDS TICK UP

Brent crude for May delivery was up more than 80 cents at $114.77 a barrel after the attacks on Libya, aimed at protecting civilians caught up in a revolt against the nation's leader, Muammar Gaddafi. [ID:nLDE72K0F1]

Brent has risen nearly 22 percent this quarter.

U.S. Treasuries prices were hurt by reduced safe-haven demand and extended losses after the Treasury said it will begin to sell $142 billion of its agency-guaranteed mortgage-backed securities. [ID:nN21219886]

Benchmark 10-year notes were last down 15/32 in price to yield 3.32 percent, up from 3.28 percent late Friday.
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(Additional reporting by Wanfeng Zhou, Nick Olivari, Chuck Mikolajczak, Emily Flitter, Karen Brettell and Robert Gibbons; Editing by Kenneth Barry)