* Hillshire Brands shares soar after Pilgrim's Pride bid
* Aeropostale jumps after it secures $150 mln credit facility
* Dow up 0.3 pct; S&P 500 up 0.4 pct; Nasdaq up 0.8 pct (Updates to early afternoon, changes byline)
NEW YORK, May 27 (Reuters) - U.S. stocks advanced on Tuesday after the S&P 500 touched a record high, buoyed by the latest round of merger activity and as expectations for rate cuts at the European Central Bank stoked investors' appetite for equities.
ECB chief Mario Draghi said on Monday the bank must be "particularly watchful" for any negative price spiral in the euro zone. His comments increased bets 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, which were closed Monday for Memorial Day, were catching up to the ECB news.
"(It's) a rate cut or some sort of nonconventional stimulus," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York. "No question about it, we had to catch up from yesterday."
Data also gave equities some support. Orders for long-lasting U.S. manufactured goods unexpectedly rose in April and consumer confidence perked up in May, backing views of a rebound in economic growth.
"The fundamentals are, we have an economy that is rebounding, 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 handily last week, indicating a rotation out of small caps and momentum shares could be over. The Russell is on track for its fourth straight advance and sixth gain in the past seven sessions.
The Dow Jones industrial average rose 51.34 points or 0.31 percent, to 16,657.61. The S&P 500 gained 7.71 points or 0.41 percent, to 1,908.24, just off its record intraday high of 1,911.61 reached this morning. The Nasdaq Composite added 31.53 points or 0.75 percent, to 4,217.34.
Shares of packaged food company Hillshire Brands surged 22.1 percent to $45.20 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 6.8 percent to $31. Pilgrim's Pride gained 1.2 percent to $25.42.
Pfizer shares edged up 0.3 percent to $29.59 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 fell 0.8 percent to $71.69.
Aeropostale shares jumped 13.8 percent to $3.88 after the teen apparel retailer secured a $150 million lifeline from affiliates of private equity firm Sycamore Partners. (Reporting by Chuck Mikolajczak; Editing by Jan Paschal)