Stocks ended with strong gains on Monday as investors were encouraged by solid earnings reports and the return of brisk mergers and acquisitions activity.
"We definitely had a lot of good news today," said Charles Rotblut, senior market analyst at Zacks.com. "There was a lot of merger news and we also had some good numbers from Merck, which is one of six Dow components reporting this week. It set a good tone."
"I think we definitely could see the Dow at new highs before the week is over," Rotblut added.
The Dow Jones Industrial Average rose 92 points, or 0.7%, ending just shy of 14,000. The S&P 500 saw slightly smaller gains while the Nasdaq Composite was a relative laggard, advancing just 0.1%.
"Some of the weakness that we saw last week was driven in part by some high profile disappointments from Google, Intel and Microsoft, so earnings are going to be key going forward," said Mike Malone, trading analyst at Cowen and Company. "If companies continue to exceed expectations this week I think we should see stocks move higher here."
Monday's gains were broad-based as nine out of 10 S&P economic sectors closed in positive territory. Telecom and drug stocks shined, each posting gains of more than 1%, while financial stocks continued to experience weakness, ending down slightly.
Merck was the biggest percentage gainer on the Dow after reporting better-than-expected earnings for the second quarter. The drugmaker -- which also lifted 2007 earnings guidance -- saw shares close at a fresh 52-week high.
"It's going to be a really big earnings week for the S&P," said Zachary Karabell, chief economist with Fred Alger Management. "Obviously, things are going to bounce up and down, but I think we are clearly in a phase where earnings are turning out to be again stronger than expected."
Oil drillers were the biggest gainers following news oil services company Transocean will buy smaller rivalGlobalSantaFe for $17 billion.
"We continue to see the deals come through and I think that's going to be supportive of a lot of activity as we go into the second half of the year," said Kevin Caron, market analyst at Ryan Beck.
Equipment rental company United Rentals accepted a $4 billion takeover bid from affiliates of Cerberus Capital Management, but is still considering other offers.
Arrow International surged after Teleflex offered to acquire the provider of catheter-based access and therapeutic products in a cash deal worth about $2 billion.
In other earnings news, Schering-Ploughtopped analysts' expectations, reporting robust second-quarter earnings growth due to rising sales of its cholesterol drug franchise.
Halliburton , the world's second-largest oil services company, also beat Wall Street forecasts. The company reported a 19% rise in second-quarter profit from continuing operations.
Treasury prices fell, sending yields higher, but the yield on the 10-year note remained below 5%.
New York light sweet crude futures closed below $75 a barrel after OPEC hinted over the weekend it may consider raising oil output to bring down the price.
European Stocks Close Higher
The London FTSE-100, the Frankfurt DAX and the Paris CAC-40 all finished higher.
Shares in Barclays helped the FTSE move higher as the British bank boosted its bid for Dutch rivalABN Amro to 67.5 billion euros ($93 billion) and added a cash component to the offer.
The attempt to sway ABN's shareholders away from a rival offer from a Royal Bank of Scotland-led consortium sawthe introduction of strategic investors in the form of China Development Bank and Singapore's Temasek, but is still lower than the existing offer from RBS.
Shares of Depfa Bank soared in German trading on news Hypo Real Estate agreed to take over the government lender in an all-share deal worth 5.7 billion euro, or about $7.9 billion.
Asian Markets Mixed
Asian markets were mixed in the afternoon session Monday with South Korea closing at a new record high and the Shanghai index up over 3%, but Japan shedding over 1% to finish at its lowest in four weeks.
The U.S. dollar fell to a record low against the euro and a six-week low against the yen, hurt by continuing worries about the U.S. subprime mortgage sector and some unwinding of yen carry trades. China raised borrowing rates in the latest of a series of moves aimed at capping inflation and preventing the world's fourth-largest economy from overheating.
Tokyo's Nikkei 225 Average sank 1% to its lowest close in nearly four weeks with exporters down on the stronger yen, while mobile carrier KDDI and its rivals fell on concern about price competition. Komatsu, Japan's top construction machinery maker, and other machinery shares also lost ground after disappointing results from industry leader Caterpillar.
South Korea's KOSPI finished at a record close led by financials such as Kookmin Bank that are expected to be among the biggest winners of a main index that is about to break the 2,000 level for the first time.
Chinese shares were bucking the negative trend and surging higher. The Shanghai Composite Index was up over 3% with banks climbing, partly because of relief that monetary tightening announced by the central bank on Friday would not hurt their profit margins seriously. After the market closed on Friday, the central bank ordered an increase of 0.27% in commercial banks' benchmark one-year lending and deposit rates. The government also said it would cut the withholding tax on interest income.
Hong Kong blue chips were steady by the lunch break, having briefly touched a record, as investors largely shrugged off an interest rate rise by Beijing and picked up insurers such as PICC Property And Casualty.