US STOCKS-Wall St up on M&A, Nasdaq 100 rebalance but volume low

* Some at Fed saw easy money need past 2011-minutes

* Texas Instruments offers to buy National Semiconductor

* Nasdaq OMX rebalances Nasdaq 100, Microsoft rallies

* Dow up 0.1 pct, S&P up 0.1 pct, Nasdaq up 0.2 pct

* For up-to-the-minute market news see [STXNEWS/US] (Updates to late afternoon; changes byline)

By Angela Moon

NEW YORK, April 5 (Reuters) - U.S. stocks rose on Tuesday after a proposed merger of two major semiconductor companies and an updating of a key Nasdaq index, but light trading volume suggested the rally may not be sustainable.

Minutes of the last Federal Reserve meeting showed some Fed officials believed the U.S. central bank should tighten conditions before year-end. Stock market reaction was muted. For details, see [ID:nN05140054]

Trading volume continued to be light. By late afternoon trade, just 4.58 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq.

"The volume is a sign that there is little conviction from sellers in this market. But those wishing for more volume should be careful what they wish for since a rebound in trading volume may come with the return of volatility, rather than the steady gains we have seen since last summer," said Jeff Kleintop, chief market strategist for LPL Financial in Boston.

A rebalancing of the Nasdaq 100 <.NDX>, which takes effect on May 2, spurred traders to buy companies with increased weightings, including Microsoft Corp , Intel Corp and Cisco Systems Inc , all of which rose more than 1 percent and were the Dow's top three percentage gainers.

Apple Inc's weighting was slashed, though it remains the biggest component. The stock was down 0.7 percent at $338.80 after earlier falling as much as 1.5 percent. For details, see [ID:nN05109783

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 71.6 percent to $24.15. Texas Instruments added 1.9 percent to $34.74. [ID:nLDE7340KR]

"Tech stocks are leading this big wave of merger and acquisition activity, which people are trying to position themselves ahead of and which I expect to continue," said James Swanson, chief investment strategist at Boston-based MFS Investment Management, which oversees about $200 billion.

The deal is the latest in a string of multibillion-dollar deals that have helped pushed stocks higher in recent weeks. The Dow closed on Monday at its highest level since June 2008, though volume was the lowest of the year.

"This is a powerful cycle that is setting the stage for further gains as we go into earnings season," Swanson said.

The Dow Jones industrial average <.DJI> was up 13.44 points, or 0.11 percent, at 12,413.31. The Standard & Poor's 500 Index <.SPX> was up 1.83 points, or 0.14 percent, at 1,334.70. The Nasdaq Composite Index <.IXIC> was up 5.74 points, or 0.21 percent, at 2,794.93.

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 raised questions about the durability of the rally.

China's central bank increased interest rates on Tuesday for the fourth time since October, raising suspicions that data next week may show higher inflation 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. [ID:nL3E7F51LX] [ID:nN04250301

KB Home shares dropped 3.9 percent to $11.72 after it reported a first-quarter loss that widened from the previous year, hurt by a fall in net orders. [ID:nL3E7F520B] (Reporting by Angela Moon; Editing by Jan Paschal)