(Adds oil settlement prices)
* Battle over debt vs equities keeps markets in check
* Dollar tumbles to 3-1/2-month low vs yen as debt yields fall
* Brent retreats below $110 on Libya violence, fall in output
By Herbert Lash
NEW YORK (Frankfurt: HX6.F - news) , May 19 (Reuters) - Global equity markets edged higher on Monday as Wall Street rose on Internet and healthcare stocks, while declining yields on government debt also initially provided U.S. equities a lift.
Pfizer (NYSE: PFE - news) 's failed bid for AstraZeneca (NYSE: AZN - news) weighed on European shares earlier in the session, with the British drugmaker the biggest drag on the FTSE 100 in London and the pan-regional FTSEurofirst 300 index.
But Pfizer rebounded on the failed bid. At one point, it was the second-largest contributor to gains in the S&P 500 index, after Apple (NasdaqGS: AAPL - news) . Pfizer rose 0.8 percent at $29.355 a share, while AstraZeneca closed down 11.1 percent in London.
Treasuries at first rallied. Yields on the benchmark 10-year U.S. Treasury note fell to 2.51 percent, near lows last seen in October, but later they traded higher at 2.5338 percent.
Analysts had expected interest rates to rise, but with rates touching seven-month lows, the bond rally has helped U.S. stocks and kept at bay a long-expected correction.
"The big story is the bond market, that is the one thing that stands out like a sore thumb," said Stephen Massocca, managing director at Wedbush Equity Management LLC in San Francisco.
"If we did not get this big decrease in rates, the (stock) market would've corrected," Massocca said. "It is maybe preventing a decline, of which we are a little overdue in the stock market."
The Dow Jones industrial average rose 16 points, or 0.1 percent, to 16,507.31. The S&P 500 gained 6.41 points, or 0.34 percent, to 1,884.27 and the Nasdaq Composite added 32.237 points, or 0.79 percent, to 4,122.825.
"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."
The pan-European FTSEurofirst 300 index, which last week hit a 6-year high of 1,372.81 points, closed down 0.19 percent at 1,358.91 points.
Benchmark 10-year U.S. Treasury notes were last up 1/32 in price to yield 2.5142 percent.
The dollar fell as low as 101.11 yen, the weakest since early February. It was last at 101.33, down 0.16 percent.
The euro gained 0.15 percent on Monday to $1.3712.
U.S. oil prices rose near one-month high as a weak dollar prompted buying, while Brent prices fell as concerns about China's slowing economy outweighed the impact of low Libyan output.
Brent settled down 38 cents to $109.37 a barrel. U.S. crude rose 59 cents to settle at $102.93.
(Additional reporting by Natsuko Waki in London, reporting by Herbert Lash; Editing by Chris Reese, Chizu Nomiyama and Nick Zieminski)