US STOCKS-Wall St flat after initial rise on bin Laden death

* Market's rise on bin Laden's death fades

* CBOE Volatility index up more than 7 pct

* Teva to buy Cephalon, Arch to acquire Int'l Coal

* Dow down 0.03, S&P down 0.08 pct, Nasdaq down 0.2 pct

* For up-to-the-minute market news see STXNEWS/US (Updates to afternoon, changes byline)

By Caroline Valetkevitch

NEW YORK, May 2 (Reuters) - U.S. stocks were little changed on Monday as a bounce on news of Osama bin Laden's death gave way to returning worries about geopolitical risk.

The CBOE Volatility Index, Wall Street's fear gauge, rose 7 percent. U.S. crude prices were down but off the sharp declines that immediately followed word of the al Qaeda leader's killing.

While analysts said bin Laden's death by U.S. forces may not affect the world economy or other geopolitical worries, it likely helped investor sentiment. For details, see [ID:nL3E7G21FJ].

"His death should not have affected the markets much ... (but) just people feeling a little better about the world sometimes impacts the stock market," said Bryant Evans, investment adviser and portfolio manager at Cozad Asset Management, in Champaign, Illinois.

Stocks also were helped by merger and acquisition announcements.

Israel-based Teva Pharmaceuticals Industries Ltd will buy Cephalon Inc for $6.8 billion, and Arch Coal Inc will acquire International Coal Group Inc for $3.4 billion. [ID:nN02205566] and [ID:nN02207434]

In addition, Community Health Systems Inc raised its bid for Tenet Healthcare Corp by $1.75 per share to $7.25. [ID:nL3E7G21GG]

The Dow Jones industrial average <.DJI> was down 4.20 points, or 0.03 percent, at 12,806.34. The Standard & Poor's 500 Index <.SPX> was down 1.15 points, or 0.08 percent, at 1,362.46. The Nasdaq Composite Index <.IXIC> was down 4.24 points, or 0.15 percent, at 2,869.30.

Byron Callan of Capital Alpha Partners said bin Laden's death could accelerate U.S. moves to withdraw from Afghanistan, but uncertainty remained about the reaction of Pakistan and al Qaeda supporters around the world.

"We still don't know what could come next," Callan said. "We've checked the 'Bin Laden' box, but we still have some open issues regarding Pakistan and what else al Qaeda could do."

The VIX index, which often moves inversely to the S&P 500, measures the cost of hedges or protection investors are willing to pay against a fall in the S&P 500.

Markets have been buffeted in recent months as unrest in the oil-producing Middle East sparked concerns about energy supplies and the global economy.

U.S.-listed shares of Teva rose 3.2 percent to $47.18, while Cephalon gained 4.7 percent to $80.65.

Arch shares were down 1 percent at $33.97, but International Coal soared 30.8 percent to $14.43 and was the most actively traded stock on the New York Stock Exchange.

Community Health fell 1 percent to $30.43, and Tenet dropped 4.2 percent to $6.64.

In other deal news, Nasdaq OMX Group and IntercontinentalExchange Inc took their $11 billion takeover bid for NYSE Euronext directly to the Big Board's shareholders with a tender offer. NYSE shares were up 1.1 percent to $40.49, while Nasdaq shares were down 0.04 percent at $27.11. (Additional reporting by Angela Moon, Andrea Shalal-Esa; Editing by Kenneth Barry)