GLOBAL MARKETS-U.S. stocks up on Greece help, dollar higher

* US stocks rise on upbeat data, hopes for Greece bailout

* US stocks boosted by upbeat U.S. economic data, mergers

* Dollar gains vs major currencies, sterling plummets (Updates with details, prices, quote)

By Manuela Badawy

NEW YORK, March 1 (Reuters) - U.S. stocks rose on Monday on renewed signs that Greece might be nearing a bailout deal and on AIG's sale of its Asian unit, while the British pound plunged versus the dollar on political uncertainty in the UK.

European shares closed higher as firm commodity prices lifted mining and oil shares.

Copper prices hit a more than five-week high in London after the massive earthquake in top global producer Chile disrupted supplies. Prices of U.S. copper futures later pulled back slightly from seven-week highs as some Chilean mines began to restart operations.

Oil seesawed as the stronger dollar helped limit upward moves.

The dollar also rose against the euro as hopes of a deal to help debt-plagued Greece were undermined as the lack of concrete developments suggests the euro remains fragile, analysts said.

"A deal with Greece would remove a lot of the uncertainty about the region, and hopefully stop the spread of concern to other countries in the EU," said John Massey, portfolio manager at SunAmerica Asset Management in Jersey City, New Jersey.

News that UK insurer Prudential Plc would buy American International Group Inc's insurance unit in Asia for $35.5 billion helped support U.S. equities. AIG shares jumped more than 6 percent. For details, see [ID:nLDE6200CL]

U.S. assets held their gains after data showed U.S. consumer spending increased slightly faster than expected in January, as consumers dipped into their savings amid a small rise in incomes. In addition, the U.S. manufacturing sector grew in February, although at a slower rate than forecast. [ID:nN01245103]

U.S. construction spending, however, fell to its lowest level since June 2003 in January, pulled down by a slump in private nonresidential spending and weak public construction. [ID:nN26102140]

"The manufacturing sector does continue to contribute to the U.S. economic recovery, unlike, say, housing or employment," said Kenneth Kim, economist at Stone & McCarthy Research Associates in Princeton, New Jersey.

"This is definitely a bright spot in the overall recovery; it's a confirmation that the economy is continuing to grow. What remains to be seen is how durable the recovery is."

The Dow Jones industrial average <.DJI> was up 82.08 points, or 0.79 percent, at 10,407.34. The Standard & Poor's 500 Index <.SPX> was up 10.72 points, or 0.97 percent, at 1,115.21. The Nasdaq Composite Index <.IXIC> was up 31.66 points, or 1.41 percent, at 2,269.92.

A deal by Germany's Merck KGaA to buy Millipore Corp also boosted Wall Street. The merger and acquisition activity indicated that investors "think the worst is over," said SunAmerica's Massey.

The pan-European FTSEurofirst 300 <.FTEU3> closed up 1.1 percent while world stocks as measured by MSCI <.MIWD00000PUS> were up 0.83 percent. While mining and oil shares rose, Prudential slumped 12 percent after it said it would buy AIG's Asian unit.

Emerging market equities were gaining 1.4 percent.

THE DOLLAR'S STRENGTH

As investors surveyed Greece's debt woes, renewed support for Greece by the European Economic and Monetary Affairs Commission somewhat eased fears, as Commissioner Olli Rehn said the euro zone stands ready to take coordinated action in support of Greece.[ID:nATH005238]

Meanwhile German Chancellor Angela Merkel said she believes Greece can fulfill its budget consolidation targets and that those steps are the best way to stop or minimize speculation against the euro. [ID:nLDE62027D]

The euro was down 0.73 percent at $1.3525 pairing some of its losses after positive comments over a bailout package for Greece.

Britain's pound fell more than 2 percent to its biggest one-day drop in a year on worries about a coming general election and its impact on the nation's economy. The pound was at $1.4985 , down 1.72 percent after earlier hitting a low of $1.4781.

An opinion poll published on Sunday suggested Britain's ruling Labour Party could remain the biggest party after this year's general election but without a majority in parliament.

The prospect of a hung parliament has rattled investors who fear that decision-making would become stymied, undermining a fragile UK recovery.

The dollar rose against a basket of major trading-partner currencies, with the U.S. Dollar Index <.DXY> up 0.65 percent at 80.88 from a previous session close of 80.362.

Against the Japanese yen, the dollar was up 0.46 percent at 89.26, while the pound was at $1.4985 , down 1.72 percent after earlier hitting a low of $1.4781.

U.S. Treasury debt prices were steady as investors were not altering their economic outlook despite higher stocks. The benchmark 10-year U.S. Treasury note was up 1/32 with the yield at 3.6136 percent from 3.62 percent late on Friday. (Additional reporting by Ryan Vlastelica in New York, Jeremy Gaunt in London; Editing by Leslie Adler)