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Bank Talk Boosts Stocks; Alcoa Skids

Stocks advanced Monday, helped by financials, after some encouraging news that suggests banks may be getting their act together.

The market also got a boost from energy stocks as crude oil jumped above $109 a barrel.

The big news in banking was that US private-equity firm TPG and other investors are near a deal to infuse $5 billionin Washington Mutual, according to a report in the Wall Street Journal reported, citing people familiar with the matter. A deal has not yet been finalized but sources say the announcement could come as soon as today.

WaMu shares soared more than 30 percent as investors looked favorably on the improvement in the bank's liquidity position.

"Financials are early cycle leaders and the news is consistent ... People are willing to step up to the plate to supply capital and liquidity to the financials," Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto, Canada, told Reuters.

Financials also got a boost after Merrill Lynch upgraded its rating on Swiss bank UBS to "buy." UBS stock has benefited from increasing investor optimism that reform is on the way at the Swiss bank as activist investor Luqman Arnold continues to turn up the heat. Arnold on Monday again urged UBS to mull a sale of of its investment bank. UBS says it will respond to calls for restructuring "in due course."

Rounding out the trifecta of news from the sector, Citigroup , which has suggested that it might start unloading nonessential assets, has agreed to sell its Diners Club International unit to Discover Financial Services for $165 million.

Wall Street is bracing for earnings season, which kicks off today with earnings due out after the closing bell from Alcoa, the first Dow component to report on the first quarter.

Analysts at Reuters Estimates again lowered their projection for S&P 500 earnings. The revised forecast, announced early Monday, calls for a collective decline of 11.8 percent for the first quarter, down from the expectation of an 8.1-percent drop issued last week and the forecast for 4.7-percent growth issued on Jan. 1.

The decline in financial earnings is pegged at 61 percent. The energy and technology sectors are expected to post the best gains, up 33 percent and 10 percent, respectively.

Alcoa was the biggest decliner on the Dow today ahead of the aluminum maker's earnings report. Analysts expect a 40 percent drop in earningsto 48 cents a share and for its revenue to slide 9 percent to $7.18 billion. Goldman Sachs on Monday raised its forecast for aluminum prices and bumped up its price target on Alcoa shares to $42 from $37.

Later in the week, investors will hear from Dow component General Electric , which reports on Friday.

"I'm encouraged that investors will actually pay attention to earnings this season," Jeffrey Kleintop, chief market strategist at LPL Financial, told CNBC. "In the last couple seasons, [earnings] were overshadowed by so many things going on in the market. Now, with credit conditions and liquidity beginning to heal ... the attention is now, I think, back on fundamentals," Kleintop said.

"With 7 out of 10 sectors likely to post gains -- year-over-year in terms of earnings -- I think investors will recognize the resilience in S&P corporate profits and begin to sustain this rally," Kleintop said.

Wall Street has shifted its gaze to earnings, but there are a few economy/recession headlines worth noting.

Martin Feldstein, who heads the group that is considered the official word on recessions, told CNBC that he, personally, believes that the U.S. has been sliding into a recession since December or January. He also said that the downturn could go on longer and deeper than the last two recessions, and that GDP would be a positive -- but misleading -- number. The NBER, however, hasn't officially declared that the economy is in a recession.

Meanwhile, former Fed Chairman Alan Greenspan said it wasn't the Fed's low-interest-rate policy that created the current credit crisis -- it was investors. "The U.S. bubble was close to median world experience and the evidence that monetary policy added to the bubble is statistically very fragile," Greenspan wrote in an op-ed in Monday's Financial Times. In a weekend interview, Greenspan said the U.S. isn't currently in a recession, but there's more than a 50 percent chancethat it's headed into one.

General Motors was the biggest gainer on the Dow following news that talks between union leaders and the auto maker's biggest parts supplier have resumed in an attempt to end a six-week strike.

After a weekend letterfrom Microsoft, which set a deadline of three weeks to make a decision on its offer, Yahoo on Monday fired back with a letter of its own, saying it's not opposed to Microsoft's offer as long as it's at the right price.

"We have continued to make clear that we are not opposed to a transaction with Microsoft if it is in the best interests of our stockholders," Yahoo's board said in the letter.

Elsewhere in tech, Thomas Weisel raised its rating on Apple

to "overweight" from "market weight."

The head of the world's largest chip maker, Intel, said in a weekend interview that the company doesn't expect a significant drop in demanddue to the U.S. economic slowdown because most of its chips are exported.

Motorola said it had settled all litigation with billionaire investor Carl Icahn ahead of the cellphone maker's annual meeting.

Shares of Delta and Northwest advanced following news that the airlines have revived merger talks. The talks are intensifying, according to a report in the Financial Times, and the two sides are set to meet again this week.

This Week:

MONDAY: Alcoa earnings after the closing bell
TUESDAY: Existing-home sales; Fed minutes
WEDNESDAY: MBA mortgage survey; wholesale trade; crude inventories; Fed's Fisher speaks; Circuit City earnings
THURSDAY: Monthly same-store sales reports; Weekly jobless claims; international trade; Bernanke speaks; U.S. budget; Earnings from Pier 1, Rite Aid, Genentech
FRIDAY: Import prices; consumer sentiment; GE earnings; G7 finance chiefs meet in Washington

Send comments to cindy.perman@nbcuni.com.