* Kraft's bid for Cadbury revives M&A hopes
* Weak dollar lifts commodities; oil, materials up
* Dow up 0.6 pct, S&P and Nasdaq up 0.9 pct (Updates to close)
By Angela Moon
NEW YORK, Sept 8 (Reuters) - U.S. stocks advanced on Tuesday on an uptick in corporate deal activity while the weak dollar led to gains in commodities, lifting shares of oil and mining companies.
Kraft Foods Inc, North America's biggest food company, said it was intent on pursuing Britain's Cadbury despite the confectionary company's rejection of a $16.7 billion Kraft bid made on Monday.
Although Kraft's stock fell nearly 6 percent, other food companies rose, including Hershey Co, which added 1.3 percent to $39.14.
"Ever since the market's big rally, a lot of folks have been concerned about valuations. But when you see a bid like this, it eases those fears," said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville, Tennessee.
The dollar fell to its lowest this year against the euro, pushing oil up 4.5 percent and gold temporarily above $1,000 an ounce.
Chevron rose more than 2 percent to $70.48, leading the Dow higher, and Freeport-McMoRan Copper & Gold Inc gained 3 percent to $68.00.
The Dow Jones industrial average closed up 56.07 points, or 0.59 percent, at 9,497.34. The Standard & Poor's 500 Index rose 8.98 points, or 0.88 percent, at 1,025.38. The Nasdaq Composite Index gained 18.99 points, or 0.94 percent, at 2,037.77.
The Kraft bid comes after France Telecom and Deutsche Telekom announced plans to merge their British mobile units.
Last week, Walt Disney Co's said it will buy Marvel Entertainment Inc for $4 billion, fueling hopes of a pick-up in merger activity.
The news of the rebuff sent Kraft shares down 5.9 percent to $26.45, but speculation about potential suitors for Cadbury buoyed the overall market sentiment.
Also in the oil sector, Exxon Mobil gained 2.1 percent to $70.65. The S&P index of energy companies was up 2.6 percent.
Health insurance stocks .HMO> slid 1.6 percent before U.S. President Barack Obama's address to Congress on Wednesday. He is expected to outline his proposed revamp of the healthcare system.
Shares of General Electric Co advanced 4.5 percent to $14.50 after J.P. Morgan Securities upgraded the stock, saying it was one of the last equities for which a little good news could still go a long way.
On the Nasdaq, shares of iPod maker Apple Inc rose 2.6 percent to $172.93 after Morgan Stanley raised its price target to $200 from $195. The Morgan Stanley also raised the U.S. systems and PC hardware sector to "attractive" from "in line."
Volume was light on the New York Stock Exchange where 1.32 billion shares changed hands, below last year's estimated daily average of 1.49 billion.
On the Nasdaq, about 2.01 billion shares traded, also below last year's daily average of 2.28 billion.
Advancing stocks outnumbered declining ones on the NYSE by a ratio of about 22 to 7. On the Nasdaq, about 16 stocks rose for every 10 that fell. (Editing by Kenneth Barry)