* Energy shares up despite oil price fall
* Utilities lead day's gain
* Indexes up: Dow 1.29 pct, S&P 1.35 pct, Nasdaq 1.19 pct (Updates to close)
By Caroline Valetkevitch
March 16 (Reuters) - U.S. stocks rallied on Monday as the U.S. dollar eased back from its recent peak and worries eased about the timing of a Federal Reserve interest rate hike.
Recent dollar strength has increased expectations the Fed could be more cautious about raising rates this year.
The day's gains gave the S&P 500 its biggest percentage gain since Feb. 3, with the S&P utilities, which tend to do well in a low interest rate environment, among the day's best-performing sectors. The utilities sector rose 1.7 percent.
The S&P healthcare sector led gains in the S&P 500. It jumped 2.2 percent, helped by a 5.7 percent price increase in shares of Amgen to $163.03, following promising data in studies of a new class of cholesterol-reducing drugs.
All eyes will be on the Fed's statement Wednesday, when investors hope the central bank will give a clearer signal on the timing of its first interest rate hike in almost a decade.
"It seems to me that interest rate expectations are driving the market right now," said Uri Landesman, president at Platinum Partners in New York. "Every day when they think it's going to start, they get nervous and sell them off. And every day they think it may be slower or not begin, then they take them up."
The day's decline in the dollar helped ease some worries over how a robust greenback might erode the earnings of multinationals.
The Dow Jones industrial average rose 228.11 points, or 1.29 percent, to 17,977.42, the S&P 500 gained 27.79 points, or 1.35 percent, to 2,081.19 and the Nasdaq Composite added 57.75 points, or 1.19 percent, to 4,929.51.
The Dow and S&P 500 had registered their third week of losses last week.
Energy shares also bounced, adding to gains late in the session despite further losses in oil prices. The S&P energy index was up 1.4 percent, while U.S. crude oil settled down 96 cents at $43.88 a barrel and earlier hit its lowest since March 2009.
Shares of Exxon Mobil were up 1.1 percent at $84.76.
Salix Pharmaceuticals shares rose 2 percent to $172.75 after it agreed to an increased $173 per share offer from Valeant Pharmaceuticals . Valeant shares were up 2.5 percent at $202.34.
The biggest percentage decliner in the S&P 500 was Avon Products, which was down 5.7 percent at $7.28 after S&P Dow Jones Indices announced late Friday the stock would be moved out of the S&P 500 this month.
About 6.2 billion shares changed hands on U.S. exchanges, below the 6.6 billion average for the month to date, according to BATS Global Markets.
Advancing issues outnumbered declining ones on the NYSE by 1,980 to 1,083, for a 1.83-to-1 ratio; on the Nasdaq, 1,549 issues rose and 1,202 fell, for a 1.29-to-1 ratio favoring advancers.
The S&P 500 posted 56 new 52-week highs and 10 new lows; the Nasdaq Composite recorded 168 new highs and 64 new lows.
Additional reporting by Sinead Carew; Editing by Nick Zieminski