Wall Street, European shares rebound, dollar rallies

By Michael Connor

NEW YORK (Reuters) - Wall Street and European stocks rebounded more than 1 percent on Monday in rallies that, along with gains in the dollar and global oil markets, pointed to a tentative recovery in investor confidence.

After another day of general weakness in Asian stock markets, U.S. equities bounced back from big losses last week, when the Federal Reserve's decision to keep interest rates near zero fanned worries about the health of the global economy.

But U.S. equity gains that had topped 1 percent earlier in the day were pared by a downturn in biotechs, after U.S. Democratic presidential candidate Hillary Clinton said she would announce a plan to stop "price gouging" for speciality drugs.

The Dow Jones industrial average in early afternoon was up 75.3 points, or 0.46 percent, to 16,459.88, the S&P 500 gained 6.43 points, or 0.33 percent, to 1,964.46 and the Nasdaq Composite dropped 5.15 points, or 0.11 percent, to 4,822.08. <.N>

The pan-European FTSEurofirst 300 closed up 1 percent even though Germany's DAX <.GDAXI> was stuck in neutral. Shares of car giant Volkswagen tumbled 19 percent after it was found to have cheated U.S. emission tests.

Investors cheered an unexpectedly clear election victory for the Syriza party in Greece on Sunday that boosted hopes its bailout programme would stay on the road.

In Asia, equity markets slumped, with 1.5 percent to 2 percent falls in Australia <.AXJO>, Korea and Malaysia <.KLSE>.

China defied the region's downtrend, with the Shanghai Composite index <.SSEC> up 1.9 percent and the CSI300 <.CSI300> rising 1.75 percent.

Oil and metals markets [MET/L] also rebounded from falls at the end of last week, although emerging market stocks and currencies continued to struggle amid global growth worries caused by last week's latest postponement of a long-awaited U.S. interest rate hike. [EMRG/FRX]

"Generally, markets are a bit more positive today," said Michael Hewson at CMC Markets in London.

"The economic environment has changed since the Fed last hiked rates (in 2006). It is not just the U.S. central bank ... It is wearing the mantle of the global central bank, and markets are struggling with that."

The U.S. dollar strengthened against a basket of major currencies on hopes the Fed was still on track to hike rates this year while the European Central Bank may ease further.

The dollar index, which measures the greenback against a basket of six major currencies, was last up 1.05 percent .

The Fed's decision last week may lead other central banks, including the ECB, to ease further, said Vassili Serebriakov, currency strategist at BNP Paribas in New York.

Investors should get a good explanation this week on why the Fed did not raise rates, with Chair Janet Yellen among a host of officials due to speak.

U.S. Treasuries prices fell as U.S. equity markets rallied and two top Federal Reserve officials spurred sales of debt by suggesting that a year-end U.S. interest rate increase was possible.

Benchmark 10-year Treasuries notes were down 21/32 in price, yielding 2.208 percent, up 7 basis points from late on Friday.

(Editing by Nick Zieminski and Bernadette Baum)