* U.S. home builder sentiment plunges in February
* Coke shares fall after results, drag on Dow industrials
* Forest Labs shares soar; Actavis agrees to buy company
* Dow off 0.2 pct, S&P 500 up 0.1 pct, Nasdaq up 0.7 pct
NEW YORK, Feb 18 (Reuters) - The S&P 500 and Nasdaq rose on Tuesday, following Wall Street's biggest weekly gain of the year, as merger activity increased confidence that there is value in the stock market even as the benchmark index nears a record high.
The Nasdaq Composite rose for an eighth straight session, a streak not seen since early July.
Economic reports were disappointing, but following a recent pattern, soft data was mostly dismissed by the market and blamed on the weather. U.S. homebuilder confidence suffered its largest one-month drop ever in February, and the New York Federal Reserve's gauge of manufacturing was weaker than expected.
"We're going to see weather as a huge brush over a lot of economic data, mostly if it is related to the consumer," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.
"People don't go out and look at homes in crappy weather."
Forest Laboratories was the S&P 500's best performer after Actavis said it would acquire the specialty pharmaceuticals company in a cash-and-stock deal valued at about $25 billion.
"This has everything to do with the changing face of healthcare and how we pay for it in the United States," Fort Pitt's Forrest said.
"If there was one big deal, there could be others."
Forest Labs shares soared 27.5 percent to $91.04. Shares of generic drug makers Teva and Mylan rose on the news. Teva gained 3.3 percent to $45.67. Mylan shot up 4.8 percent to 48.30 and was the best performer in the Nasdaq 100 .
The Dow Jones industrial average fell 23.99 points or 0.15 percent, to end at 16,130.40. The S&P 500 gained 2.13 points or 0.12 percent, to finish at 1,840.76. The Nasdaq Composite added 28.758 points or 0.68 percent, to close at 4,272.783.
The S&P 500 closed 0.4 percent below its record close hit on Jan. 15. The small-cap Russell 2000 outperformed the overall market with a 1.1 percent gain for the day.
Coca-Cola Co reported global sales volumes below expectations and its stock fell 3.8 percent to $37.47, weighing on the Dow.
With few obvious justifications for stocks climbing further, investors are left in the position they were in at the beginning of the year: unsure about the economy and earnings, but facing an environment where few other assets offer the same potential return as the equity market.
After the closing bell, Herbalife shares rose 4 percent after the company posted quarterly results and guidance.
Tesla Motors shares hit an all-time high following a report that Apple's mergers and acquisitions chief, Adrian Perica, met Tesla Chief Executive Officer Elon Musk last year, sparking speculation that Apple could be interested in buying the electric car maker.
Tesla shares rose 2.8 percent to $203.70 after hitting a record intraday high of $206. Apple shares edged up 0.4 percent to $545.99.
U.S.-traded shares of BlackBerry Ltd rose 5.3 percent to $9.46. Dan Loeb's Third Point LLC Hedge fund disclosed a 10-million-share stake in the Canadian company.
Swedish mobile phone game maker King, best known for the hit Candy Crush Saga, is planning a U.S. stock market debut that could value it at more than $5 billion and trigger a flurry of technology company listings.
About 6.2 billion shares traded on U.S. exchanges, below the 7.13 billion average so far in February, according to data from BATS Global Markets.
Advancing issues outnumbered declining ones on the New York Stock Exchange by a ratio of 2 to 1. On the Nasdaq, about nine issues rose for every four that fell.