Stocks closed sharply higher on a big day for corporate mergers, but investors may turn their attention back to the economy on Tuesday.
The Dow Jones Industrial Average closed with big gains, although it was off of earlier highs. The Nasdaq rallied and the S&P 500 hit a 6-year high.
Merger activity, encouraging housing data and lower oil prices contributed to optimism among investors despite a big sell-off in Dow component Pfizer.
Economic data may drive the markets the rest of the week. On Tuesday, there will be the latest reports on productivity, costs and overall strength of the services sector. Analysts are hoping the data will provide clues about the health of the economy.
"Regardless of the Fed, the stock market still looks strong," said Jordan Kotick, Global Head of Technical Analysis for Barclays Capital, appearing on CNBC's "Closing Bell." "If the stock market is a proxy for the economy, then the economy looks strong."
Analysts saw positive signs in the housing data released Monday. According to the National Association of Realtors, pending home sales declined slightly in October, suggesting greater stability in the market.
Oil prices finished under $63 a barrel on Monday on trader concerns that U.S. energy supplies would exceed demand. Natural gas futures dropped more than 7% to their weakest close since late September.
Stocks rallied throughout the day, with the Dow, at one point, gaining more than 100 points.
"What's really going on here is a mass of liquidity, both from firms on the balance sheets and private equity coming into these markets recognizing that we still have some bargains out there," said Ernie Ankrim, Russell Investment Group Chief Strategist, appearing on CNBC's "Street Signs."
Several big mergers gave the market a boost. The banking sector rose after the Bank of New York and Mellon Financial announced they have agreed to merge. The combined company, which will be called Bank of New York Mellon, will have a market capitalization of about $43 billion, making it the 11th largest U.S. financial institution.
Another big deal came in the semiconductor sector, with LSI Logic , which makes storage and DVD chips, agreeing to buy chip and storage company Agere Systems for about $4 billion in stock.
Station Casinos said it received a management-led buyout offer from its CEO, Frank Fertitta, valuing the company at $82 a share. The company, which operates casinos in Las Vegas, has established a special committee of independent directors to review the bid.
Poultry producer Pilgrim's Pride announced it is buying rival GoldKist in a deal worth $1.1 billion. The combined company will be the world's largest chicken company in terms of production.
Pfizer dropped sharply after the company said a key cholesterol drug in its pipeline would not make it to market because of safety concerns.
The cholesterol drug torcetrapib was expected to fill the revenue gap left when Pfizer's patent on Lipitor expired.
"When companies and investors look at what went wrong here, the issue was not that a drug failed - drugs fail all the time," said Scott Henry, Pharmaceutical Analyst at Oppenheimer, appearing on "Closing Bell." "The problem was that Pfizer was so reliant on this torcetrapib molecule to extend the Lipitor franchise."
In an exclusive interview on CNBC's "Power Lunch," Pfizer CEO Jeffrey Kindler expressed disappointment about the failure of torcetrapib, but he touted the company's existing pipeline and focus on growth through strategic acquisitions.
"We're not looking for some short-term financial benefit from an acquisition," said Kindler. "We want to strategically grow our business. We think there are opportunities in biotechnology, in vaccines, in specialty areas like oncology."
Onyx Pharmaceuticals was also down sharply after Onyx and Bayer said their new Nexavar drug had failed to improve the survival rate for skin cancer patients.
In the currency markets, the dollar rebounded against the euro, pound sterling and yen in European trading, after falling sharply against major currencies last week.
Europe Closes Higher
London's FTSE-100 , the Frankfurt DAX and Paris' CAC-40 all closed up encouraged by the higher market in the U.S. The indexes had pulled back from early gains, as pessimism about the drug sector countered enthusiasm about merger and acquisition activity.
Shares of AstraZeneca climbed early in the session in London, but other major drug stocks struggled. The failure of Pfizer's drug was an "important positive" for AstraZeneca, since the product had been the biggest potential competitor to its fast-growing cholesterol drug Crestor, Morgan Stanley said in a research note, according to Reuters.
Meanwhile, currency markets will be closely watched all week. Whether the euro or sterling can continue to rally will depend greatly on a mass of European economic news out this week. On Thursday, the European Central Bank and the Bank of England will make a decision on interest rates. On Wednesday there will be consumer confidence numbers from the U.K., U.K. manufacturing numbers and factory order data from Germany. And Tuesday will see the Euro zone reporting the latest retail sales numbers.
Weak U.S. Data Hits Japan, Korea
Fears of contraction in the U.S. economy pressured stock prices in Asia.
The Nikkei 225 edged lower as investors sold exporters such as Kyocera amid concerns of a stronger yen. The drop came after data released by the Japanese Ministry of Finance on Monday morning showed an increase of 12% in spending by Japanese companies on plant and equipment in the July-to-September quarter, compared with the same quarter a year earlier.
South Korea's Kospi Index closed down as the won approached a nine-year high against the U.S. dollar. Australian stocks also closed lower on the back of the U.S. market's decline Friday. Hong Kong shares were higher.