US STOCKS-Wall St advances; Internet stocks lift Nasdaq

* Internet names jump; concerns remain over valuation

* AT&T (NYSE: T - news) to buy DirecTV (Frankfurt: DIG1.F - news) for $48.5 billion

* Russell 2000 rebounds after three-day decline

* Dow up 0.2 pct; S&P 500 up 0.4 pct; Nasdaq up 0.8 pct (Updates to late afternoon trading)

By Ryan Vlastelica

NEW YORK (Frankfurt: HX6.F - news) , May 19 (Reuters) - U.S. stocks rose on Monday, with another drop in bond yields supporting equities and gains in Internet and biotech stocks giving the Nasdaq an outsized advance.

Equities have been pressured recently, with the S&P 500 coming off its first two-week decline 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 near 2.5 percent, investors may have felt compelled to wade into equities and help keep them afloat.

"The listlessness in the market shows the struggle investors are having right now: Valuations are full but not stretched, and there's a lack of decisive evidence that the economy will kick into higher growth and justify these valuations," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

"Equities remain a better choice than bonds or cash this year, but on a near-term basis, they might succumb to gravity."

High-growth "momentum" stocks were among the strongest of the day, with TripAdvisor Inc (NasdaqGS: TRIP - news) up 5.2 percent at $86.44 and Netflix Inc (NasdaqGS: NFLX - news) up 4.1 percent at $364.29. Vertex Pharma gained 3.6 percent to $67.36.

Internet and biotech names have been among the most volatile in recent weeks, advancing on signs of economic improvement and slumping on concerns that their valuations are too hefty. The small-cap Russell 2000 index was up 0.8 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.

"I don't know what to make of the gain in growth stocks, other than the fact that they've been beaten up to the point of being oversold, which is attracting short-term traders and some short covering," said Luschini, who helps oversee about $63 billion in assets. "Nothing has changed to make them a screaming buy, and we're still not interested in them."

The Dow Jones industrial average was up 24.54 points, or 0.15 percent, at 16,515.85. The Standard & Poor's 500 Index was up 7.09 points, or 0.38 percent, at 1,884.95. The Nasdaq Composite Index was up 33.62 points, or 0.82 percent, at 4,124.21.

The Dow's gain was limited as AT&T Inc fell 1.7 percent to $36.12 a day after agreeing to buy DirecTV for $48.5 billion. DirecTV shares fell 1.9 percent to $84.58.

U.S.-listed shares of AstraZeneca (NYSE: AZN - news) sank 11.4 percent to $71.12. The British drugmaker rejected a sweetened and "final" merger offer from Pfizer (NYSE: PFE - news) that would have created the world's largest pharmaceuticals group. Pfizer shares climbed 0.9 percent to $29.40.

Campbell Soup Co fell 2.5 percent to $44.01 and ranked as one of the S&P 500's worst performers after posting weaker-than-expected quarterly sales and cut its full-year sales forecast. (Editing by Bernadette Baum, Nick Zieminski and Jan Paschal)