* Dollar General offers to buy Family Dollar
* Homebuilders' stocks rise after upbeat economic data
* Russia: Humanitarian convoy issue resolved, but no cease-fire
* Dow up 1 pct; S&P 500 up 0.8 pct; Nasdaq up 0.9 pct (Updates to mid-afternoon)
By Akane Otani
NEW YORK, Aug 18 (Reuters) - U.S. stocks surged on Monday, with the Dow up roughly 1 percent and the Nasdaq at a 14-year high as increasing homebuilder confidence and hopes for receding tensions between Russia and Ukraine brightened investors' view of the outlook for equities.
All three indexes extended gains from last week. The tech-heavy Nasdaq, up around 0.9 percent, had climbed above the key 4,500 mark, a level it has not seen since April 2000, and the S&P 500 was back to within 1 percent of an all-time high in early afternoon trading.
Homebuilders' stocks rose after the NAHB/Wells Fargo Housing Market index showed that homebuilder sentiment rose for the third straight month in August.
The PHLX housing sector index climbed 1.4 percent, lifted by a rally in major homebuilders, including PulteGroup Inc, up 2.2 percent at $18.67, and D.R. Horton Inc , up 0.9 percent at $21.02.
Ambiguity lingered in Russia, where tensions with Ukraine have recently rattled markets. Russian officials said on Monday that while all issues related to the country's humanitarian convoy to Ukraine had been resolved, progress had not been made on reaching a cease-fire.
"Today, geopolitical threats from the Israel-Palestine situation and from Ukraine and Russia have sort of taken a back seat, and buyers are showing up," said Adam Sarhan, chief executive of Sarhan Capital in New York.
The Dow Jones industrial average rose 167.75 points, or 1.01 percent, to 16,830.66. The S&P 500 gained 15.26 points, or 0.78 percent, to 1,970.32. The Nasdaq Composite advanced 40.15 points, or 0.9 percent, to 4,505.08.
Another supporting factor is an expectation that Federal Reserve Chair Janet Yellen will signal later this week that the central bank remains committed to providing easy money for some time to come. She is scheduled to speak on Friday to central bankers from around the globe in Jackson Hole, Wyoming, at an annual conference hosted by the Federal Reserve Bank of Kansas City.
"The Fed remains accommodative, the economy is continuing to improve, and earnings are more or less not disappointing, which is all good news," Sarhan said.
A flurry of merger and acquisitions activity gave stocks another boost.
Discount retailer Dollar General Corp offered to buy Family Dollar Stores Inc for $8.95 billion, trumping an offer by Dollar Tree Inc. Family Dollar shares gained 5 percent to $79.87. Dollar General jumped 10.4 percent to $63.43, ranking as the S&P 500's best performer.
Dow component Procter & Gamble Co is working with advisers, including Goldman Sachs Group, as the world's largest household products maker reviews up to 100 underperforming brands for potential divestiture, people familiar with the matter said. P&G's stock shot up 1 percent to $82.58. (Reporting by Akane Otani; Editing by Chizu Nomiyama, Nick Zieminski and Jan Paschal)