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US STOCKS-S&P 500 and Nasdaq gain, but investors cautious

* AstraZeneca rejects sweetened Pfizer offer

* AT&T to buy DirecTV for $48.5 billion

* Dow off 0.01 pct; S&P 500 up 0.3 pct; Nasdaq up 0.7 pct (Updates to midday)

By Chuck Mikolajczak

NEW YORK, May 19 (Reuters) - U.S. stocks mostly advanced on Monday as investors exercised caution over valuations after a run of mixed economic data, but another drop in bond yields helped support equities.

U.S.-listed shares of AstraZeneca tumbled 11.1 percent to $71.39. The British drugmaker rejected a sweetened and final merger offer from Pfizer that would have created the world's largest pharmaceuticals group. Pfizer shares climbed 1.1 percent to $29.45.

AT&T slid 1.9 percent to $36.03 and dragged on the Dow a day after the telecom company said it will acquire DirecTV for $48.5 billion, as it seeks fresh avenues of growth beyond the maturing U.S. cellular business. DirecTV shares fell 1.4 percent to $84.92.

Equities have come under pressure recently with the S&P 500 marking consecutive weekly declines for the first time since January as investors have become concerned about the U.S. economy's growth prospects. Last week, readings on retail sales and consumer sentiment fell shy of expectations while labor and housing data provided reason for optimism.

But with the yield on the 10-year U.S. Treasury note at 2.5 percent, investors may have been compelled to wade into equities and help keep them afloat.

"Part of this - driven by where rates are at and bonds continuing to rally - when you might look for a pullback in the stock market, that is making stocks look more attractive," said Stephen Massocca, managing director at Wedbush Equity Management LLC in San Francisco.

"It is maybe preventing a decline of which we are a little overdue in the stock market, from a valuation perspective."

The Dow Jones industrial average fell 1.93 points or 0.01 percent, to 16,489.38. The S&P 500 gained 4.83 points or 0.26 percent, to 1,882.69. The Nasdaq Composite added 29.79 points or 0.73 percent, to 4,120.38.

Small-cap stocks, often the first beneficiaries of growth, managed to rebound. The small-cap Russell 2000 index was up 0.7 percent after three straight declines. The index has several times approached correction territory, a decline of 10 percent from a recent high, only to bounce back slightly.

Investors' defensive posture has been reflected by a sector rotation into utilities, telecoms and energy, which have outperformed the broader S&P 500 over the past three months.

Campbell Soup Co fell 2.9 percent to $43.81 and ranked as the S&P 500's worst performer. The world's largest soup maker posted weaker-than-expected quarterly sales and cut its full-year sales forecast.

(Editing by Bernadette Baum, Nick Zieminski and Jan Paschal)