* Wall St opens higher on M&A activity; S&P extends seven-week winning streak * Google shares hit all-time high at $804 * European shares gain after strong German data * Yen gains as Japan officials' rift muddles policy view By Angela Moon NEW YORK, Feb 19 (Reuters) - Global stock markets rose on Tuesday, with U.S. stocks boosted by merger and acquisition activity, while a pick-up in German economic sentiment supported European stocks. But Wall Street's gains were capped as the S&P 500 hovered near a five-year high, extending its seven-week winning streak. Investors scrambled for new catalysts to push the market higher with the benchmark index already up 6.6 percent for the year. In Europe, shares chalked up their strongest gains in a week after losing around 1.5 percent since the end of January. Following last week's GDP figures showing a weaker-than-expected end to 2012 in the euro zone, Germany's ZEW survey of investors and analysts brightened the mood as it comfortably beat expectations and hit its highest level since April 2010. Boosting the U.S. market, Google shares rose more than 1 percent to an all-time high of $804.00. Office Depot Inc, the No. 2 U.S. office supply retailer, was in advanced talks to merge with smaller rival OfficeMax Inc and a deal could come as early as this week, according a person familiar with the matter. Office Depot shares surged 17 percent to $5.37 and OfficeMax shares jumped 25.5 percent to $13.49. Shares of larger rival Staples Inc also shot up 14.3 percent, to $14.81. "M&A is providing an enormous amount of enthusiasm in pockets and it is really a function of the cost of money, the cost of borrowing. It is a sign there is a shift going on in the economy that is very, very positive," said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey. "At the same time, if you take the M&A activity out of the picture, you will see that many on the Street are expecting a pullback." MSCI's world equity index was up 0.6 percent, though markets have been falling for two weeks since a big run-up in January. The Dow Jones industrial average was up 43.37 points, or 0.31 percent, at 14,025.13. The Standard & Poor's 500 Index was up 6.36 points, or 0.42 percent, at 1,526.15. The Nasdaq Composite Index was up 10.97 points, or 0.34 percent, at 3,203.00. The FTSEurofirst 300 rose 1.1 percent, led by a 1.8 gain on Paris' CAC-40 and a 1.5 percent rise for Frankfurt's DAX. In the currency market, the yen climbed after two days of losses after Japanese Finance Minister Taro Aso said he was not considering buying foreign bonds as part of efforts to ease monetary policy, a day after Prime Minister Shinzo Abe said this was an option. That highlighted the open disagreement between the two Japanese officials, which has somewhat muddled the outlook for the country's monetary policy and created two-way risk for dollar/yen trades. Markets still expect Japan to ease policy aggressively -- a negative for the yen -- but the approach is less clear-cut, which could slow the currency's fall. In addition, although Japan was not singled out at this weekend's Group of 20 meeting for monetary and fiscal measures that have resulted in yen weakness, Choi Hee Nam, South Korea's director-general at its finance ministry, said Japan's policies were not endorsed by the group and did spark controversy, according to a report from Bloomberg News. "Developments in the past few days highlight the fact that there are internal rifts on the policy approach and there may be external constraints on what sort of easing measures Japan's partners will deem acceptable," said Shaun Osborne, chief currency strategist at TD Securities in Toronto. He added that near-term downside risks loom large for the dollar against the yen. In early New York trading, the dollar fell 0.5 percent to 93.50 yen, well below a peak of 94.22 yen hit on Monday after Japan escaped direct criticism from its G20 peers over the weekend. However, it remained above chart support at 93.38 yen, the 200-hour moving average. The euro was down 0.5 percent against the yen at 124.81 yen . Against the dollar, the euro was little changed at $1.3349 after hitting session highs on an upbeat German economic sentiment survey. U.S. Treasury debt was little changed, with the benchmark 10-year U.S. Treasury note yielding 2.0034 percent. Brent crude oil fell for a third session in a row on signs of lackluster European growth and easing geopolitical tensions. Brent crude for April delivery was down 66 cents at $116.72 per barrel. U.S. crude for March fell 17 cents from Friday's close to $95.69.