(Updates stock prices)
* Dollar tumbles to 3-1/2-month low vs yen as debt yields fall
* Brent retreats below $110 on Libya violence, fall in output
* Bond prices edge higher on expectations of lower yields
By Herbert Lash
NEW YORK (Frankfurt: HX6.F - news) , May 19 (Reuters) - Global equity markets traded near break-even on Monday as Pfizer (NYSE: PFE - news) 's failed bid for AstraZeneca (EUREX: AZNF.EX - news) weighed on European shares but helped lift Wall Street, while declining yields on government debt also helped U.S. stocks to rise.
AstraZeneca (NYSE: AZN - news) rejected a sweetened and "final" offer from Pfizer, sending the British drugmaker's shares down more than 11 percent in London and making it the biggest weight on a pan-European index of leading regional companies.
Pfizer's shares rebounded on the failed bid, making it the second-largest contributor to a rise in the S&P 500 index after Apple (NasdaqGS: AAPL - news) . Pfizer rose 1.27 percent to $29.49 a share, while AstraZeneca closed at 42.875 pounds in London.
Treasuries, meanwhile, rallied. Yields on the benchmark 10-year U.S. Treasury note fell to 2.51 percent, near lows last seen in October.
Analysts had expected interest rates to rise, but with rates touching seven-month lows, the bond rally has helped U.S. stocks from falling further 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, from a valuation perspective."
The Dow Jones industrial average fell 2.34 points or 0.01 percent, to 16,488.97. The S&P 500 gained 4.8 points, or 0.26 percent, to 1,882.66 and the Nasdaq Composite added 29.796 points, or 0.73 percent, to 4,120.384.
Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York, said equity investors still see an improving U.S. economy yet the bond market sees otherwise.
"You really have this dichotomy going in and nobody is winning and we are stuck in neutral a bit because of that," Ghriskey said.
The pan-European FTSEurofirst 300 index, which last week hit a 6-year high of 1,372.81 points, was down 0.19 percent at 1,358.91 points.
U.S. Treasuries prices edged higher on sentiment that bond yields could hit multi-month lows again, leading investors to mainly seek longer-dated bonds to avoid price losses.
"When we get this dropping of yield, the folks that have not participated have really lagged from a performance perspective," said Justin Hoogendoorn, fixed income strategist at BMO Capital Markets in Chicago. "You don't want to be caught off-side."
Benchmark 10-year U.S. Treasury notes were last up 1/32 in price to yield 2.5142 percent.
The dollar fell to its lowest in more than three months against the yen, pressured by the drop in U.S. Treasury yields that may be due to persistent uncertainty about U.S. economic growth prospects.
The dollar fell as low as 101.11 yen, the weakest since early February. It was last at 101.28, down 0.21 percent.
The euro gained 0.14 percent on Monday to $1.3711.
Brent crude rose above $110 a barrel on renewed concerns over Libya's oil output following some of the worst violence in Tripoli since the 2011 war against Muammar Gaddafi.
Brent later retreated. Brent fell 8 cents to $109.67 a barrel. U.S. crude rose 91 cents to $102.93.
(Additional reporting by Natsuko Waki in London, reporting by Herbert Lash; Editing by Chris Reese and Chizu Nomiyama)