(Updates stock prices)
* Dollar tumbles to 3-1/2-month low vs yen as debt yieldsfall
* Brent retreats below $110 on Libya violence, fall inoutput
* Bond prices edge higher on expectations of lower yields
By Herbert Lash
NEW YORK (Frankfurt: HX6.F - news) , May 19 (Reuters) - Global equity markets tradednear break-even on Monday as Pfizer (NYSE: PFE - news) 's failed bid for AstraZeneca (EUREX: AZNF.EX - news)weighed on European shares but helped lift Wall Street, whiledeclining yields on government debt also helped U.S. stocks torise.
AstraZeneca (NYSE: AZN - news) rejected a sweetened and "final" offerfrom Pfizer, sending the British drugmaker's shares downmore than 11 percent in London and making it the biggest weighton a pan-European index of leading regional companies.
Pfizer's shares rebounded on the failed bid, making it thesecond-largest contributor to a rise in the S&P 500 index afterApple (NasdaqGS: AAPL - news) . Pfizer rose 1.27 percent to $29.49 a share, whileAstraZeneca closed at 42.875 pounds in London.
Treasuries, meanwhile, rallied. Yields on the benchmark10-year U.S. Treasury note fell to 2.51 percent, near lows lastseen in October.
Analysts had expected interest rates to rise, but with ratestouching seven-month lows, the bond rally has helped U.S. stocksfrom falling further and kept at bay a long-expected correction.
"The big story is the bond market, that is the one thingthat stands out like a sore thumb," said Stephen Massocca,managing director at Wedbush Equity Management LLC in SanFrancisco.
"If we did not get this big decrease in rates, the (stock)market would've corrected," Massocca said. "it is maybepreventing a decline of which we are a little overdue in thestock market, from a valuation perspective."
The Dow Jones industrial average fell 2.34 points or0.01 percent, to 16,488.97. The S&P 500 gained 4.8points, or 0.26 percent, to 1,882.66 and the Nasdaq Composite added 29.796 points, or 0.73 percent, to 4,120.384.
Tim Ghriskey, chief investment officer of Solaris Group inBedford Hills, New York, said equity investors still see animproving U.S. economy yet the bond market sees otherwise.
"You really have this dichotomy going in and nobody iswinning and we are stuck in neutral a bit because of that,"Ghriskey said.
The pan-European FTSEurofirst 300 index, which lastweek hit a 6-year high of 1,372.81 points, was down 0.19 percentat 1,358.91 points.
U.S. Treasuries prices edged higher on sentiment that bondyields could hit multi-month lows again, leading investors tomainly seek longer-dated bonds to avoid price losses.
"When we get this dropping of yield, the folks that have notparticipated have really lagged from a performance perspective,"said Justin Hoogendoorn, fixed income strategist at BMO CapitalMarkets in Chicago. "You don't want to be caught off-side."
Benchmark 10-year U.S. Treasury notes were lastup 1/32 in price to yield 2.5142 percent.
The dollar fell to its lowest in more than three monthsagainst the yen, pressured by the drop in U.S. Treasury yieldsthat may be due to persistent uncertainty about U.S. economicgrowth prospects.
The dollar fell as low as 101.11 yen, the weakestsince early February. It was last at 101.28, down 0.21 percent.
The euro gained 0.14 percent on Monday to $1.3711.
Brent crude rose above $110 a barrel on renewed concernsover Libya's oil output following some of the worst violence inTripoli since the 2011 war against Muammar Gaddafi.
Brent later retreated. Brent fell 8 cents to $109.67a barrel. U.S. crude rose 91 cents to $102.93.
(Additional reporting by Natsuko Waki in London, reporting byHerbert Lash; Editing by Chris Reese and Chizu Nomiyama)