GLOBAL MARKETS-U.S., European stocks gain; oil falls on Iraq OPEC exemption

* Oil prices lower as Iraq seeks exemption from OPEC deal

* Wall Street rises on flurry of deal activity

* With (Other OTC: WWTH - news) potential end of political impasse, Spain shares rally

* U.S. Treasury yields rise in line with global bonds (Updates with Wall Street open and oil prices; replaces dateline with New York)

By Hilary Russ

NEW YORK, Oct (HKSE: 3366-OL.HK - news) 24 (Reuters) - Stock markets rose on Monday, with Wall Street higher on several big deals and Europe led by a surge in Spain's IBEX index, while oil prices fell after Iraq said it wanted to be exempt from an OPEC deal to cut production.

Merger and acquisition activity spurred Wall Street, headed by Saturday's announcement by telecommunications company AT&T (Swiss: T-USD.SW - news) Inc that it plans to buy Time Warner Inc (Frankfurt: A0RGAY - news) for $85.4 billion in what would be the biggest deal in the world this year if approved by regulators.

"The deal activity suggests that companies are feeling positive about the prospects of the economy and that is encouraging," said Peter Cardillo, chief market economist at First Standard Financial.

Iraqi oil minister Jabar Ali al-Luaibi said Baghdad wants to be exempt from any production cut the Organization of the Petroleum Exporting Countries is aiming to achieve.

Brent crude futures were down about 1 percent, or 51 cents, at $51.27 a barrel by 1500 GMT. U.S. West Texas Intermediate (WTI) crude was also about 1 percent lower, by 54 cents at $50.30.

However, losses were capped by comments from Iran's deputy oil minister Amir Hossein Zamaninia, who said Tehran would encourage other OPEC members to join an output freeze.

The Dow Jones industrial average rose 91.87 points, or 0.51 percent, to 18,237.58, the S&P 500 gained 10.17 points, or 0.47 percent, to 2,151.33 and the Nasdaq Composite added 46.70 points, or 0.89 percent, to 5,304.10.

AT&T (Sao Paolo: ATTB34.SA - news) was down 1.52 percent and Time Warner was last down 2.22 percent. AT&T's Chief Executive told investors he expects the planned acquisition to receive regulatory clearances.

TD Ameritrade also said it would buy privately held Scottrade Financial Services in a deal valued at $4 billion. And little-known China Oceanwide Holdings Group pledged $3.8 billion in a deal to take control of U.S. insurer Genworth Financial (Frankfurt: A0CA8M - news) .

Spain's IBEX index led gains in Europe on signs that 10 months of political deadlock could end. The impasse has paralyzed government in one of the countries worst-hit by the euro zone's debt crisis.

Conservative leader Mariano Rajoy was on course to secure a second term in power for his People's Party (PP) after the Socialists agreed to abstain in a confidence vote this week.

"In the very short term, the formation of a government is good news for Spanish spreads," Rabobank analysts said in a morning note. "However, in the medium term Spain will still be left with a minority government that is likely to face an uphill struggle to pass any legislation."

The IBEX was up 1.27 percent, outstripping its German and French equivalents, which were 0.47 percent and 0.36 percent higher, respectively.

U.S. Treasury yields lurched higher, in line with a rise in global bond yields, with traders seeing little action ahead of next week's Federal Open Market Committee meeting.

Yields on benchmark German Bunds rallied from three-week lows, while UK bonds rose from one-week troughs.

MSCI (Frankfurt: 3HM.F - news) 's broadest index of Asia-Pacific shares outside Japan rose 0.42 percent. Japan's Nikkei was 0.29 percent higher while Shanghai outperformed, rising 1.21 percent.

"It feels to us like 'China' has taken a back seat in discussions amongst market participants. We are wary about this apparent complacency," Citi macro strategist Jeremy Hale said.

"We suspect part of the reason is renewed optimism regarding all things emerging markets. To a large degree China has ridden this wave and 'hard landing' fears have ebbed away. But on closer inspection we're not so sure much has changed." (Additional reporting by Patrick Graham and Ahmad Ghaddar in London; Tanya Agrawal in Bengaluru and Gertrude Chavez-Dreyfuss in New York; Editing by Nick Zieminski)