By Ros Krasny

CHICAGO (Reuters Life!) - Thousands of music fans from around the world are swarming Chicago's lakefront this weekend for three days of music, beer and sweat at Lollapalooza, the biggest U.S. alternative music festival.

Indy-rock veterans Pearl Jam close the festival on Sunday night. Other headliners include French house-music pair Daft Punk, American indy rockers Spoon and the Yeah Yeah Yeahs, and punk legends Iggy Pop and Patti Smith.

"Chicago's the place to be -- if you're not in Chicago you're missing out!" singer Daniel Johns of Australian post-grunge band Silverchair exclaimed on Saturday before dedicating a song to Oprah Winfrey, the city's talk-show superstar.

The city skyline lends a spectacular backdrop as more than 130 bands compete for fans' eyes and ears on nine stages, across genres from garage rock and hip-hop to reggae and electronica.

Friday's hot, sunny weather turned to gray skies and occasional showers on Saturday, and to heavy storms overnight, threatening to turn Sunday into a mud bath.

But on Saturday night the rain couldn't dampen the enthusiasm of the 60-year-old Smith, a 2007 inductee to the Rock and Roll Hall of Fame.

"I was born in Chicago in one of the worst blizzards of 1946. A little rain ain't going to hurt," said Smith, during an intense, politically charged hourlong set.

MUSICAL OLYMPICS

Lollapalooza feels like a musical Olympic Games as multiple events happen concurrently -- but it is the fans doing the 800-meter dash between one stage and the next to not miss their favorite bands or the next big thing.

Saturday night's headliner matchup pitted Muse, the pride of Teignmouth, England, against New York indie rock quartet Interpol.

For Steven, John and Frank, three excitable lads visiting from Manchester, England, in matching Union Jack t-shirts, the choice was easy.

"For your pounds, Muse puts on the best show you can see," Steven said, explaining that the trio travel the globe to see the bank's dramatic blend of Radiohead-meets-hard rock, complete with a spectacular light show.

While the majority of Lolla-goers are 20-somethings, it was a family affair for Ken Barr, 53, of Davenport, Iowa, attending with wife Jeanne and their 15 and 18 year-old-daughters.

"The scheduling conflict between Iggy Pop and the Kings of Leon is the most stressful situation, but we've pretty much decided on Iggy -- well, maybe not my wife," he said. "We've been looking forward to this all summer."

Even the youngest fans had their own stage, Kidzapalooza. Smith preceded her main set with a surprise appearance, as did Jim James, frontman of My Morning Jacket, the eclectic rockers due to perform on Sunday.

The festival, which in its 1990s incarnation toured the United States each summer, is contracted to stay in Chicago through 2011.