A burst of corporate dealmaking is giving investors a shot of confidence about the US economy.
Stock indexes rose more than 1 percent Monday to post their biggest gains in about a month, breaking a three-day slide. The Dow Jones industrial average jumped 124 points, recouping much of what it lost last week.
Large acquisitions from Abbott Laboratories and Xerox Corp. vaulted shares of drugmakers and technology companies higher, and the buying spread to other parts of the market as investors hoped that the $6 billion-plus deals could be a sign that deal activity is finally picking up a year after the financial system nearly froze.
A resumption of corporate takeover deals would represent an important milepost in the American economy's recovery. Companies had grown so worried about the economy in the past year that they were hesitant to part with cash and often had trouble lining up financing.
A willingness by big companies to wager stock and borrow cash to bulk up their business also sets off a guessing game among investors about what the next takeover targets might be. Just last week Dell Inc. said it would acquire technology company Perot Systems Corp. for $3.9b., and earlier this month Kraft Foods Inc. made an overture for candy maker Cadbury PLC for $16.7b. - the latest signs that big-time dealmaking could be staging a comeback.
"It's encouraging to all investors when you see companies buy because basically what that says is they're in a more aggressive mode as opposed to being in the fetal position," said Mark Coffelt, portfolio manager at Empiric Funds in Austin, Texas.
According to preliminary calculations, the Dow rose 124.17, or 1.3%, to 9,789.36, its biggest gain in more than a month. Last week, the Dow lost 155 points following lackluster reports on housing and manufacturing.
The broader Standard & Poor's 500 index rose 18.60, or 1.8%, to 1,062.98, and the Nasdaq composite index rose 39.82, or 1.9%, to 2,130.74.
Abbott Laboratories said Monday it would acquire the pharmaceutical business of Belgian chemicals maker Solvay for $6.6b,, while and Xerox Corp. agreed to buy Affiliated Computer Services for about $6.4 billion.
Four stocks rose for every one that fell on the New York Stock Exchange. Volume came to 967 million shares compared with 1.2 billion Friday. Volume was light because of the Jewish holiday.
All major indexes rose more than 1 percent.
The stock market's rise breaks a three-day slide that gave the market its worst week since early July. The losses were modest given how far stocks have climbed since major indexes slid to 12-year lows on March 9. The S&P 500 index is up 54.4% since then.
Charlie Smith, chief investment officer at Fort Pitt Capital in Pittsburgh, said some money managers and other professionals are racing to catch up with the market's advance before the third quarter ends on Wednesday.
"The mistake that people are afraid of now versus six months ago is not having enough money in the market," he said. "It's a sentiment swing."
Abbott Labs rose $1.38, or 2.9%, to $48.71. Abott's purchase of Brussels-based Solvay gives the company access to emerging markets in Eastern Europe and Asia along with new therapeutic areas such as the fast-growing market for vaccines.
Johnson & Johnson Inc. rose 74 cents, or 1.2%, to $61.36, after it bought an 18% stake in Dutch biotechnology company Crucell for $440 million in hopes of developing a universal flu vaccine.
Xerox's deal for ACS set off a rally in other information-technology companies, and came just one week after computer maker Dell Inc. said it would spend $3.9 billion in cash to acquire the technology services company Perot Systems Corp.
More than four stocks rose for every one that fell on the New York Stock Exchange, where volume came to 618.9 million shares compared with 756.3 million shares traded at the same point Friday. Trading was light as some market participants were out for Yom Kippur.
German stocks led the advance in Europe Monday after voters gave Chancellor Angela Merkel's new pro-business coalition a majority in parliament.
Britain's FTSE 100 index of leading British shares closed up 83.5 points, or 1.6%, at 5,165.70 while France's CAC-40 rose 85.86 points, or 2.3%, to 3,825.
However, those gains were dwarfed by the DAX's performance, which ended 154.90 points, or 2.8%, higher at 5,736.31 after elections Sunday gave the conservative Merkel a second four-year term. Her Christian Democrats have enough seats to end the "grand coalition" with the center-left Social Democrats and are expected to form a new government with the pro-business Free Democrats.
The mood in Asia remained fairly downcast amid ongoing jitters about the rising yen.
Japan's Nikkei 225 stock average fell 256.46, or 2.5%, to 10,009.52, at one point dipping below the 10,000-point level for the first time in two months after the yen reached an eight-month high against the dollar.
The dollar was trading at 89.31 yen after hitting 88.22 on Monday, its lowest level since January.
A stronger yen can hurt Japanese exporters by reducing the value of overseas profits when sent back home and can make their products less price competitive. Many Japanese exporters have based their earnings forecasts on the assumption that $1 buys an average of 95 yen.
Japan's new government, which took power this month, has expressed little concern about a stronger yen and even says it is potentially a good thing as it can boost consumer spending by making foreign goods and raw materials cheaper.
Elsewhere, Hong Kong's Hang Seng index declined 435.99, or 2.1%, to 20,588.41. South Korea's Kospi fell 0.9% while Singapore's benchmark declined 1.3%. China's Shanghai index surrendered early gains to fall 2.7%. Markets in India were closed.
The dollar traded mixed Friday, falling to a seven-month low versus the yen, caught in crosscurrents of statements of support from Treasury Secretary Timothy Geithner at the Group of 20 summit and comments on continuing stimulus spending across the world.
The 16-nation euro edged up to $1.4665 in late New York trading from $1.4654 late Thursday. On Wednesday, the euro peaked at $1.4842, its highest level in 12 months.
The British pound fell to $1.5938 in late trading from $1.6063 Thursday, hitting its lowest point since mid-June after statements earlier this week from Bank of England officials who talked of the likelihood of bumps on the road to recovery and the usefulness of a weak currency.
Meanwhile, the dollar tumbled to 89.90 Japanese yen from 91.27 yen, sinking as low as 89.40 yen, its weakest point since February.
In other trading in New York, the dollar edged up to 1.0922 Canadian dollars from 1.0903 late Thursday, and dipped to 1.0299 Swiss francs from 1.0303 francs.
Benchmark crude for November delivery rose 82 cents to settle at $66.84 a barrel on the New York Mercantile Exchange.
Gold for current delivery closed at $992.50 per troy ounce on the New York Mercantile Exchange, up from $990.20 late Friday.