By Herbert Lash

NEW YORK (Reuters) – The dollar gained and global equity markets surged on Monday on merger activity among drugmakers on both sides of the Atlantic, while Chinese stocks hit a seven-year high on a government plan to create a modern Silk Road trade route.

Major U.S. and European indexes rallied more than 1 percent on a spate of deals as the dollar rose against other currencies on the view the Federal Reserve will raise interest rates this year.

Health insurer UnitedHealth Group Inc agreed to buy Catamaran Corp in a deal worth about $ 12.8 billion. Also Monday, Israel’s Teva Pharmaceutical Industries said it would buy U.S. biopharmaceutical firm Auspex Pharmaceuticals Inc for $ 3.5 billion, and Ireland’s Horizon Pharma Plc agreed to buy U.S. drugmaker Hyperion Therapeutics Inc for about $ 1.1 billion.

Earlier, China unveiled details of an ambitious plan to improve links from Asia to Europe and Africa that President Xi Jinping said in a decade would generate $ 2.5 trillion in annual trade with the countries involved.

Germany’s DAX index <.GDAXI> rose 1.8 percent, to about 1 percent below its all-time high, while the FTSEurofirst index <.FTEU3> of 300 leading European companies gained 1.18 percent to close at 1,596.31.

MSCI’s all-country world index <.MIWD00000PUS> rose 0.75 percent, while its emerging markets index <.MSCIEF> gained 1.16 percent.

On Wall Street, the Dow Jones industrial average <.DJI> closed up 263.65 points, or 1.49 percent, to 17,976.31. The S&P 500 <.SPX> rose 25.22 points, or 1.22 percent, to 2,086.24 and the Nasdaq Composite <.IXIC> gained 56.22 points, or 1.15 percent, to 4,947.44.

“A lot of it is certainly merger-related, there’s no question about that, and that gins up confidence among everyday investors. If the insiders are willing to make big acquisitions, why not the rest of us?” said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.

Andrew Wilkinson, chief market strategist at Interactive Brokers LLC in Greenwich, Connecticut, said investors believe they can see beyond any take-off of interest rates.

“They’re beginning to feel that the central banks around the world are going to be at the helm. Even if the Fed tightens rates, it’s not going to be a big move,” Wilkinson said.

The euro slumped against the dollar on worries whether Greece would secure funds from a 240 billion euro aid package before it runs out of cash in three weeks.

The single currency was down 0.71 percent against the dollar at $ 1.0810 , bringing its quarterly decline to about 10.6 percent, the largest fall by a quarter since the euro took effect in 1999.

The dollar rebounded after comments late Friday from Fed Chair Janet Yellen underscored the view that the U.S. central bank is likely to start raising rates gradually later this year.

The dollar index <.DXY>, a gauge of the greenback’s value against a basket of currencies, climbed 0.77 percent to 98.042 after back-to-back weeks of losses.

The greenback was up 0.88 percent against the yen at 120.15 yen .

Oil prices slipped as officials from Iran and six world powers discussed a possible deal over Tehran’s nuclear program that could end sanctions and allow an increase in Iranian oil exports.

Brent crude fell 12 cents to settle at $ 56.29 a barrel. U.S. crude settled down 19 cents at $ 48.68 a barrel.

U.S. Treasury debt prices softened, giving back some gains from last week as equity markets rose.

Yields on the 10-year note stayed well below the 2 percent touched last week and were last at 1.9562 percent on a price decline of 2/32.

(Reporting by Herbert Lash; Editing by Meredith Mazzilli, Chris Reese and Nick Zieminski)