* Indexes up: Dow 0.5 pct, S&P 0.5 pct, Nasdaq 0.9 pct (Updates to morning trading)
By Rodrigo Campos
NEW YORK (Frankfurt: HX6.F - news) , May 27 (Reuters) - U.S. stocks rose on Tuesdaywith the S&P 500 hitting a fresh record high supported by mergeractivity and as expectations for rate cuts at the EuropeanCentral Bank stoked bids for equities.
ECB chief Mario Draghi said on Monday the bank must be"particularly watchful" for any negative price spiral in theeuro zone. That added to suggestions from other ECB policymakersthat the bank was ready to cut rates next week to counter lowinflation and weak lending in the euro zone, keeping assetpurchases as an option.
U.S. markets were catching up to the ECB news after marketswere closed Monday for Memorial Day.
"June has been signaled as the point in time when Draghi hasto do something," said Art Hogan, chief market strategist atWunderlich Securities in New York. "We've had some false startswith the ECB and we hope this is not another one. We hope thisis substantial."
Data was also supportive of equities. Orders forlong-lasting U.S. manufactured goods unexpectedly rose in Aprileven as a measure of business capital spending plans dropped.Home prices rose in March more than expected and consumerconfidence rose to near its highest since 2008.
Utilities were leading gains on the S&P 500 afterlast week hitting their lowest since early April. Still, theRussell 2000 and Nasdaq Composite outperformed other major indexes on Tuesday, as they did handilylast week, indicating a rotation out of small caps and momentumshares could be over.
"We've had no disappointment as of yet on the economic datacalendar," said Hogan. "We'll continue to press up at the nextresistance level at 1,910" on the S&P.
The Dow Jones industrial average rose 75.63 points or0.46 percent, to 16,681.9, the S&P 500 gained 10.12points or 0.53 percent, to 1,910.65 and the Nasdaq Composite added 36.70 points or 0.88 percent, to 4,222.50.
Shares of packaged food company Hillshire Brands jumped 21.6 percent to $45.01 after poultry producer Pilgrim'sPride offered to buy Hillshire in a $6.4 billion deal.Shares of Pinnacle Foods (NYSE: PF - news) , which is in the process ofbeing acquired by Hillshire, fell 6 percent to $31.26, whilePilgrim's Pride added 4.3 percent to $26.18.
Pfizer (NYSE: PFE - news) shares edged up 0.7 percent to $29.69 a dayafter the U.S. drugmaker walked away from its bid to buyAstraZeneca (NYSE: AZN - news) for nearly 70 billion pounds ($118 billion).U.S.-traded AstraZeneca shares dropped 1.3 percent to $71.35.
Aeropostale shares jumped 13.8 percent to $3.88after the apparel retailer secured a $150 million lifeline fromaffiliates of private equity firm Sycamore Partners. (Reporting by Rodrigo Campos; Editing by Bernadette Baum andNick Zieminski)
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