US STOCKS-S&P 500 hits record on mergers, small-cap rebound

Reuters - UK Focus

* Hillshire Brands (Frankfurt: LEE1.F - news) shares soar after Pilgrim's Pride bid

* Aeropostale (NYSE: ARO - news) jumps after it secures $150 mln creditfacility

* Dow up 0.3 pct; S&P 500 up 0.4 pct; Nasdaq up 0.8 pct (Updates to early afternoon, changes byline)

By Chuck Mikolajczak

NEW YORK (Frankfurt: HX6.F - news) , May 27 (Reuters) - U.S. stocks advanced on Tuesdayafter the S&P 500 touched a record high, buoyed by the latestround of merger activity and as expectations for rate cuts atthe European Central Bank stoked investors' appetite forequities.

ECB chief Mario Draghi said on Monday the bank must be"particularly watchful" for any negative price spiral in theeuro zone. His comments increased bets that the bank was readyto cut rates next week to counter low inflation and weak lendingin the euro zone, keeping asset purchases as an option.

U.S. markets, which were closed Monday for Memorial Day,were catching up to the ECB news.

"(It's) a rate cut or some sort of nonconventionalstimulus," said Peter Cardillo, chief market economist atRockwell Global Capital in New York. "No question about it, wehad to catch up from yesterday."

Data also gave equities some support. Orders forlong-lasting U.S. manufactured goods unexpectedly rose in Apriland consumer confidence perked up in May, backing views of arebound in economic growth.

"The fundamentals are, we have an economy that isrebounding, and we saw that in today's numbers," Cardillo said.

The Russell 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. The Russell is on track for its fourthstraight advance and sixth gain in the past seven sessions.

The Dow Jones industrial average rose 51.34 points or0.31 percent, to 16,657.61. The S&P 500 gained 7.71points or 0.41 percent, to 1,908.24, just off its recordintraday high of 1,911.61 reached this morning. The NasdaqComposite added 31.53 points or 0.75 percent, to4,217.34.

Shares of packaged food company Hillshire Brands surged 22.1 percent to $45.20 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 6.8 percent to $31. Pilgrim'sPride gained 1.2 percent to $25.42.

Pfizer (NYSE: PFE - news) shares edged up 0.3 percent to $29.59 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 fell 0.8 percent to$71.69.

Aeropostale shares jumped 13.8 percent to $3.88after the teen apparel retailer secured a $150 million lifelinefrom affiliates of private equity firm Sycamore Partners. (Reporting by Chuck Mikolajczak; Editing by Jan Paschal)

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