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* Rally in bank stocks cool as bond yields ease
* GameStop builds on Monday's 40% surge
* Indexes up: Dow 0.53%, S&P 1.49%, Nasdaq 3.17% (Adds comment, details; updates prices)
By Shashank Nayar and Medha Singh
March 9 (Reuters) - U.S. stocks advanced on Tuesday, with the Nasdaq jumping over 3% to recoup its losses in the previous session as U.S. bond yields retreated and investors picked up battered technology stocks.
Among the biggest boosts to the S&P 500 and the Nasdaq were Tesla Inc, Apple Inc, Amazon.com Inc, Facebook Inc and Microsoft Corp jumped between 2.4% and 7.2% after sharp losses in recent weeks as a rise in yields raised concerns over their high valuations.
Signs that a $1.9 trillion coronavirus relief package was closing in on final approval sparked a spike in yields on Monday, pushing the tech-heavy Nasdaq to end more than 10% below its Feb. 12 closing high that confirmed a correction.
U.S. 10-year Treasury bond yields eased to 1.54% after hovering near 13-month highs of 1.613% in the prior session. Longer-dated yields have jumped over the last month as investors price in a faster-than-expected economic rebound and higher inflation.
Higher yields can weigh even more on tech and growth stocks with lofty valuations, as they threaten to erode the value of their longer-term cash flows.
"Tech stocks are overdue for some kind of bounce after the downfall they have had so far with most investor maintaining a positive outlook (on them) in the medium to longer term," said Michael Sheldon, chief investment officer at RDM Financial in Westport, Connecticut.
"Potential headwind for the market is if interest rates rise further from this point over the short period... since they have risen too fast in too little time."
At 9:59 a.m. ET, the Dow Jones Industrial Average rose 168.01 points, or 0.53%, to 31,970.45, the S&P 500 gained 57.06 points, or 1.49%, to 3,878.41 and the Nasdaq Composite gained 399.55 points, or 3.17%, to 13,008.71.
The rise in yields has accelerated a rotation from "stay-at-home" winners to stocks primed to benefit from an economic reopening, helping the blue-chip Dow hit an intraday record high on Monday.
The global economic outlook has brightened as vaccine rollouts gain speed and the United States launches a massive new stimulus package, the Organisation for Economic Cooperation and Development said, hiking its 2021 growth forecasts.
The U.S. House of Representatives could approve the relief bill as early as Tuesday, with a vote allowing the Democratic president to sign the legislation into law later this week.
The bank index dropped 2% after vaulting to a new 14-year peak. Financials and energy sectors were in the red.
GameStop was up 18%, building on Monday's rise of over 40% on the video retailer's e-commerce strategy and speculation that small investors will pour stimulus checks into markets.
Advancing issues outnumbered decliners by a 2-to-1 ratio on the NYSE and by a 3.2-to-1 ratio on the Nasdaq.
The S&P 500 posted 15 new 52-week highs and no new low, while the Nasdaq recorded 131 new highs and eight new lows. (Reporting by Shashank Nayar and Medha Singh in Bengaluru; Editing by Maju Samuel)