GLOBAL MARKETS-World stocks rally on M&A; oil up on Middle East

* M&A activity supports global shares

* Wall Street rises but faces resistance

* Euro slips back after hitting multi-month highs

* Oil hits 2-1/2-year highs on Middle East unrest
(Rewrites, updates prices, adds quote, details)

By Leah Schnurr

NEW YORK, April 4 (Reuters) – Merger and acquisition
activity helped lift global equities on Monday, but gains were
kept in check after recent highs, while expectations of higher
euro zone interest rates took the euro briefly to an 11-month
high against Japan’s yen.

Crude oil prices hit 2-1/2-year highs as the unrest in
Libya continued to unnerve investors.

On Wall Street the broad S&P 500 (.SPX: Quote, Profile, Research) edged higher as it
faced levels where selling has clustered in recent sessions. It
was hovering just above 1,333, a level that it has been unable
to close above since mid-February.

The S&P recorded its best two-week period since December on
Friday and the Dow industrials (.DJI: Quote, Profile, Research) hit its highest intraday
level since June 2008.

“It wouldn’t be unhealthy to see a period of consolidation
in the short term, but with this kind of momentum you sometimes
don’t get that pause,” said Richard Ross, global technical
strategist at Auerbach Grayson in New York.

The Dow Jones industrial average (.DJI: Quote, Profile, Research) added 17.18 points,
or 0.14 percent, to 12,393.90. The Standard & Poor’s 500 Index
(.SPX: Quote, Profile, Research) edged up 1.28 points, or 0.10 percent, at 1,333.69. The
Nasdaq Composite Index (.IXIC: Quote, Profile, Research) rose 2.38 points, or 0.09
percent, to 2,791.98.

World stocks as measured by MSCI (.MIWD00000PUS: Quote, Profile, Research) were up
0.4 percent, hovering around a one-month high and up nearly 5
percent for the year to date.

In the latest acquisition news, Pfizer Inc (PFE.N: Quote, Profile, Research) rose 1.1
percent to $20.60 after the drugmaker agreed to sell its
Capsugel unit, the world’s largest maker of hard capsules, to
private equity firm KKR & Co (KKR.N: Quote, Profile, Research) for nearly $2.4 billion.
For details, see [ID:nN04165993]

And in Europe Belgian chemicals group Solvay (SOLB.BR: Quote, Profile, Research)
launched a bid for French rival Rhodia (RHA.PA: Quote, Profile, Research) , driving up
Rhodia’s shares 48 percent. [ID:nLDE66P0SY]

Vodafone (VOD.L: Quote, Profile, Research) rose after selling its 44 percent stake in
France’s second biggest telecom operator SFR to Vivendi
(VIV.PA: Quote, Profile, Research). [ID:nLDE73319N]

European stocks added to three-week highs hit Friday with a
0.1 percent rise for the FTSEurofirst 300 (.FTEU3: Quote, Profile, Research). Japan’s
Nikkei (.N225: Quote, Profile, Research) closed up 0.1 percent.

The improving macroeconomic backdrop has been primarily
responsible for the bounce-back in equities after tumbling in
March on Japan’s disaster and unrest in North Africa and the
Middle East.

RATES DRIVE EURO

The economic growth improvement has cemented expectations
that the ECB will raise interest rates Thursday and led to
speculation the U.S. Federal Reserve may be getting closer to
withdrawing exceptional liquidity. [ID:nLDE7330AC]

“As the economy turns the corner and gets back on its feet,
central bankers are beginning to see inflation as a greater
threat than lack of growth,” said Jonathan Sudaria, dealer at
Capital Spreads.

A top Federal Reserve official said on Monday that U.S.
inflation is likely to remain low for now, but policymakers
will keep a close eye on potentially self-fulfilling consumer
expectations for higher prices. [ID:nN04244409]

Reflecting expectations of differing rate paths, the euro
hit an 11-month high against the yen and touched a five-month
peak against the dollar. The single currency later slipped back
with expectations of an increase in rates already priced in by
investors.

In contrast to the ECB, the Bank of Japan is likely to
downgrade its economic assessment at its meeting Wednesday and
may consider finding more ways to help the economy recover from
last month’s massive earthquake and devastating tsunami.

Key euro-priced bank-to-bank lending rates hit new 21-month
highs Monday, boosted by rate hike expectations.
[ID:nLDE7330V9]

The euro briefly popped above 120 yen (EURJPY=R: Quote, Profile, Research) for the
first time since May 2010 and was later at 119.55 yen. It hit a
five-month high against the dollar of $1.4269 and was later at
$1.42138 (EUR=: Quote, Profile, Research).

In commodities markets, North Sea Brent crude oil hit a
2-1/2-year high of almost $120 a barrel on Monday as the unrest
in the Middle East and North Africa kept the focus on oil
supplies as economic growth bolstered demand for fuel.

“The focus remains on headlines out of the Middle East,”
said Edward Meir, senior commodity analyst at brokers MF
Global, despite what he called a “less-than-compelling
fundamental backdrop.”

ICE Brent (LCOc1: Quote, Profile, Research) rose $1.25 to a high of $119.95 a barrel,
its highest since August 2008, before slipping back to trade
around $119.80. U.S. crude (CLc1: Quote, Profile, Research) rose 15 cents at $108.09 a
barrel, after touching $108.78 earlier in the session, its
highest since September 2008.

Analysts say the loss of oil from Libya has been more or
less offset by Saudi Arabia, while the Japanese crisis should
also reduce oil import demand, suggesting “there likely is a
statistical surplus in the system right now”, Meir said.
(Reporting by Leah Schnurr; Additional reporting by Rodrigo
Campos in New York, Christopher Johnson in London; Editing by
Leslie Adler)

GLOBAL MARKETS-World stocks rally on M&A; oil up on Middle East