* Dollar gains; oil remains weak
* Empire State manufacturing way below expectations
* U.S. stocks rebound from sluggish start (Adds oil settlement prices)
By Chuck Mikolajczak
NEW YORK, Aug 17 (Reuters) - World equity indexes gained modestly on Monday as upbeat U.S. housing data helped Wall Street shrug off a weak manufacturing report, while the prospect of higher U.S. interest rates lifted the dollar for a third day.
U.S. equities rebounded from a lower open as a report showed that U.S. homebuilder sentiment rose in August to its highest level in nearly a decade. ID:nL3N10S4N5
Earlier, stocks had dropped as Empire State data showed August manufacturing activity in New York was at its weakest in years. ID:nL1N10S0J8
"Investors are in pause mode leading up to the Fed minutes later this week," said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis.
"The manufacturing data did cause some weakness today because it adds to the uncertainty before the rate hike decision and since the global economy is showing varying degrees of growth."
Minutes from the U.S. Federal Reserve's most recent policymaking meeting are due to be released on Wednesday. Investors await that document for clues on how soon the Fed may hike rates for the first time in nearly ten years, with many analysts expecting such a move by the end of the year.
The expectations for an impending rate hike helped the dollar rise, as did reassurance from China fixing its yuan exchange rate slightly higher for a second day running. The dollar index .DXY was up 0.28 percent. ID:nL5N10S21T
Housing stocks advanced after the NAHB/Wells Fargo Housing Market index showed U.S. homebuilder sentiment rose in August to its highest since a matching reading almost a decade ago. The PHLX housing sector index .HGX gained 1.1 percent.
REBOUND
European stocks bounced from last week's heavy selloff of nearly 3 percent, with the pan-European FTSEurofirst 300 index .FTEU3 closing up 0.25 percent.
MSCI's all-country world stock index .MIWD00000PUS edged up 0.12 percent.
Crude oil remained weak near 6-1/2 year lows, as U.S. crude CLc1 settled down 1.5 percent at $41.87, while Brent LCOc1 settled down 0.9 percent to $48.74, after data indicated Japan's economy contracted in the second quarter amid oversupply concerns. ID:nL3N10S05C
The Dow Jones industrial average .DJI rose 51.85 points, or 0.3 percent, to 17,529.25, the S&P 500 .SPX gained 9.12 points, or 0.44 percent, to 2,100.66 and the Nasdaq Composite .IXIC added 37.23 points, or 0.74 percent, to 5,085.46.
Germany's DAX lost 0.4 percent .GDAXI and France's CAC 40 climbed 0.6 percent .FCHI . Britain's FTSE 100 .FTSE was flat, ending 0.01 percent lower.
The yuan fell more than 4 percent at one point last week, pulling down riskier assets including emerging currencies globally on fears of a currency war. But China slowed the pace of the currency's drop, and on Monday fixed it higher for the second day in a row. ID:nL3N10S1EH
Benchmark 10-year notes US10YT=RR were last up 14/32 in price to yield 2.1502 percent from 2.198 late on Friday. ID:nL1N10S0ZL