GLOBAL MARKETS-Euro steady on rate outlook, stocks advance

* 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 (LCOc1: Quote, Profile, Research) fell 82 cents to
$114.77 a barrel.

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: Quote, Profile, Research) was up 38.78
points, or 0.32 percent, at 12,259.37. The Standard & Poor’s
500 Index (.SPX: Quote, Profile, Research) was up 4.05 points, or 0.31 percent, at
1,317.85. The Nasdaq Composite Index (.IXIC: Quote, Profile, Research) 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 (XAU=: Quote, Profile, Research) slipped as low as $1,409.95 an ounce.

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 (US10YT=RR: Quote, Profile, Research) was
down 10/32 in price to yield 3.48 percent. T
(Reporting by Ryan Vlastelica, Julie Haviv and Ellen Freilich
in New York; Kirsten Donovan and Claire Milhench in London;
Writing by Herbert Lash; Editing by Leslie Adler)

GLOBAL MARKETS-Euro steady on rate outlook, stocks advance