U.S. stocks advanced more than 1 percent on Monday after AT&T said it would buy wireless rival T-Mobile, sparking expectations of more deal activity, while investors kept close watch on Japan's nuclear crisis.

The AT&T deal, which would create the largest wireless phone operator in the United States, boosted hopes for more M&A activity.

Glimmers of hope about Japan's nuclear crisis and investor Warren Buffett's comments about a buying opportunity for Japanese stocks also boosted investor sentiment.

The iShares MSCI Japan Index Fund was up 1.8 percent.

Stocks posted losses last week as uncertainty about the crisis in Japan kept investors on edge.

AT&T Inc said it would pay $39 billion for Deutsche Telekom AG's T-Mobile USA, sparking a sharp rally in European telecom shares.

AT&T shares were up 0.7 percent to $28.14. In European market, Deutsche Telecom rose 13.1 percent and Vodafone Plc was up 3.9 percent.

Any sort of M&A activity has a beneficial impact on the market as a whole because it gives the impression corporate insiders see value in the market, said Thomas Villalta, portfolio manager for Jones Villalta Asset Management in Austin, Texas, which he said has a small holding in telecom services.

Shares of AT&T competitor Sprint Nextel Corp plummeted 16.2 percent at $4.23.

The Dow Jones industrial average <.DJI> was up 186.78 points, or 1.58 percent, at 12,045.30. The Standard & Poor's 500 Index <.SPX> was up 19.54 points, or 1.53 percent, at 1,298.74. The Nasdaq Composite Index <.IXIC> was up 51.35 points, or 1.94 percent, at 2,695.02.

The Nasdaq briefly rose more than 2 percent, helped by gains in semiconductor shares. An index of semiconductors <.SOX> was up 2.3 percent. The index fell about 9 percent over the last two weeks.

In Japan, power cables have been connected to all six nuclear reactors at a power plant damaged by an earthquake and tsunami. The World Health Organization said radiation found in food from the area near the damaged nuclear plant was a serious situation.

Investors also kept a careful eye on events in Libya where Western powers launched a second wave of air strikes early Monday against the forces of Muammar Gaddafi.

Libya and unrest in the Middle East pushed oil prices more than 1 percent higher. Brent crude futures rose to $115.25 a barrel.

(Reporting by Caroline Valetkevitch, additional reporting by Angela Moon; Editing by Kenneth Barry)