* Texas Instruments offers to buy National Semiconductor
* China hikes interest rates but impact may be muted
* Nasdaq OMX rebalances Nasdaq 100, Microsoft rallies
* Dow up 0.2 pct, S&P up 0.3 pct, Nasdaq up 0.5 pct (Updates to midday, changes byline)
By Ryan Vlastelica
NEW YORK, April 5 (Reuters) - U.S. stocks advanced on Tuesday as a large acquisition helped lift positive sentiment and offset another rate hike in China.
Texas Instruments late Monday offered to buy National Semiconductor in a deal worth $6.5 billion, a premium of 78 percent. National Semi shares jumped 71.4 percent to $24.11. Texas Instruments added 1.9 percent to $34.74.
The deal is the latest in a string of multibillion-dollar deals that have helped pushed stocks higher in recent weeks. The Dow closed at a new 2011 high on Monday, its highest level since June 2008, though volume was the lowest of the year.
"These kinds of deals show that even with the rate hike and the ISM number, prices are still extremely attractive," said Tim Courtney, chief investment officer at Burns Advisory Group in Oklahoma City. "That's why the market is holding steady despite some bad news."
China's central bank increased interest rates on Tuesday for the fourth time since October, raising suspicions that data next week may show inflation rose more than expected in March.
In the latest snapshot of the U.S. economy, the Institute for Supply Management showed the vast U.S. services sector grew more slowly in March than it did in February. The pace of March growth was slower than what economists had expected.
The Dow Jones industrial average was up 25.96 points, or 0.21 percent, at 12,425.99. The Standard & Poor's 500 Index was up 4.24 points, or 0.32 percent, at 1,337.11. The Nasdaq Composite Index was up 13.84 points, or 0.50 percent, at 2,803.01.
Earlier, the Dow touched a fresh intraday high at 12,430.76.
The S&P 500 rose above 1,333, a closely watched level that is double the low it reached in the financial crisis. It hasn't ended above that level since mid-February, and the recent light volume has prompted questions over how much enthusiasm there is to continue the rally.
Apple Inc slid 0.4 percent to $339.90, off its session low after the stock had its weighting cut in a rebalancing of shares in the Nasdaq 100. The rebalancing, which takes effect May 2, forced some to sell the iPhone maker's stock.
Some companies had their weightings increased, including Microsoft Corp and Cisco Systems Inc. Microsoft's stock gained 1.7 percent to $25.99 and topped the Nasdaq's most-active list. Cisco's shares rose 1.1 percent to $17.25.
Investors will scour the minutes from the latest meeting of the Fed's policy-setting committee, expected at 1800 GMT. Fed Chairman Ben Bernanke said a recent rise in U.S. inflation was driven primarily by global commodity prices and was unlikely to persist.
KB Home shares dropped 2.7 percent to $11.87 after it reported a first-quarter loss that widened from the previous year, hurt by a fall in net orders. (Reporting by Ryan Vlastelica; Editing by Jan Paschal)