S&P 500 at fresh record, small caps continue to bounce

By Rodrigo Campos

NEW YORK (Reuters) - U.S. stocks rose on Tuesday with the S&P 500 hitting a fresh record high supported by merger activity and as expectations for rate cuts at the European Central Bank stoked bids for equities.

ECB chief Mario Draghi said on Monday the bank must be "particularly watchful" for any negative price spiral in the euro zone. That added to suggestions from other ECB policymakers that the bank was ready to cut rates next week to counter low inflation and weak lending in the euro zone, keeping asset purchases as an option.

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

"June has been signalled as the point in time when Draghi has to do something," said Art Hogan, chief market strategist at Wunderlich Securities in New York. "We've had some false starts with the ECB and we hope this is not another one. We hope this is substantial."

Data was also supportive of equities. Orders for long-lasting U.S. manufactured goods unexpectedly rose in April even as a measure of business capital spending plans dropped. Home prices rose in March more than expected and consumer confidence rose to near its highest since 2008.

Utilities were leading gains on the S&P 500 after last week hitting their lowest since early April. Still, the Russell 2000 and Nasdaq Composite outperformed other major indexes on Tuesday, as they did handily last week, indicating a rotation out of small caps and momentum shares could be over.

"We've had no disappointment as of yet on the economic data calendar," said Hogan. "We'll continue to press up at the next resistance level at 1,910" on the S&P.

The Dow Jones industrial average rose 75.63 points or 0.46 percent, to 16,681.9, the S&P 500 gained 10.12 points 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's Pride offered to buy Hillshire in a $6.4 billion deal. Shares of Pinnacle Foods, which is in the process of being acquired by Hillshire, fell 6 percent to $31.26, while Pilgrim's Pride added 4.3 percent to $26.18.

Pfizer shares edged up 0.7 percent to $29.69 a day after the U.S. drugmaker walked away from its bid to buy AstraZeneca 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 $3.88 after the apparel retailer secured a $150 million lifeline from affiliates of private equity firm Sycamore Partners.

(Reporting by Rodrigo Campos; Editing by Bernadette Baum and Nick Zieminski)