Stocks advanced Monday as news that China's sovereign wealth fund is considering a stake in U.S. power company AES helped cool talk about a trade rift between the U.S. and China, which rattled the market earlier.
The Dow Jones Industrial Average rose 21.39 points, or 0.2 percent, to close at 9,629.80. The S&P 500 advanced 0.6 percent and the Nasdaq gained 0.5 percent.
Volatility began to subside in the market: The CBOE volatility index settled below 24.
Shares of AES shot up 4.5 percent, while the S&P utilities index gained 1.4 percent after the Wall Street Journal reported that China and AES were in talks. AES owns 14 utilities, has 11 million customers and $16 billion in annual revenue.
This was just the latest buzz about M&A activity.
Shares of Sprint Nextel jumped 10 percent following a report in Britain's Sunday Telegraph newspaper that Deutsche Telekomwas considering making a bidfor the phone carrier. Sources told CNBC that Sprint is not awareof any Deutsche Telekom bid.
Fallout also continued from Kraft's failed bid for Cadbury. The British chocolatier released a letter saying the offer failed to reflect the company's true value, and also said Kraft's low-growth conglomerate business model didn't fit in with Cadbury's strategy.
And Johnson & Johnson is in talks to cut the price of its $1.5 billion merger with Irish drugmaker Elan for an 18.4-percent stake in the company and its drug pipeline.
Stocks had started the day lower as a trade dispute between the US and China rattled the market. The rift started on Friday, when President Obama announced tariffs against tires from China, which followed up Monday by asking the World Trade Organization to intervene. The tariffs came on the heels of a union complaint that a surge of imports of the Chinese tires were taking away American jobs.
"You don't want to be messing with your biggest trading partner who holds most of your debt," Joe Saluzzi, co-manager of trading at Themis Trading, told Reuters. The economy "is still teetering on all sorts of edges here. Something like this could be the spark that sends us lower."
General Electric was the biggest gainer on the Dow, followed by JPMorgan and DuPont.
GE shot up more than 4 percent, topping $15 for the first time since January. After breaking through that level, the pace of buying accelerated further.
Banks, including JPMorgan, advanced as they are typically among the biggest beneficiaries of M&A deals.
But Bank of America's gain was modest following news that a judge hasrejected its $33 million settlementwith the SEC over Merrill Lynch bonuses and several BofA executives face charges over their handling of the deal.
Drug stocks were higher from the getgo as investors took some defensive positions.
Eli Lilly rose 1 percent after the drug maker announced plans to cut $1 billion in costs and 5,500 jobsover the next two years. Lilly also backed its full-year non-GAAP forecast of $4.20 to $4.30 a share.
Shares of Salix Pharmaceuticals surged more than 50 percent after the drug maker said its Rifaximin irritable bowl syndrome had met the main goals of late-stage studies.
And Dendreon shares soared 15 percent amid speculation that the company, which is working on a prostate cancer vaccine, is a takeover target.
As the market started to turn around, techs, banks and retail also gained.
Oil prices fell as the dollar, which has hit a succession of 12-month lows in recent days, firmed a bit. US light, sweet crude dropped below $69 a barrel.
President Obama's speech on financial reform had little impact on the market.
The president said there is still a need for government help to stabilize the financial system but the need is waning. He also said that taxpayers have earned a 17-percent return on the taxpayer-funded bailout measures.
Volume was below average, with 1.21 billion shares changing hands on the New York Stock Exchange. Advancers outpaced decliners, roughly 2 to 1.
TUESDAY: PPI; retail sales; Empire State survey; business inventories; earnings from Best Buy, Adobe
WEDNESDAY: Weekly mortgage applications; CPI; current account; industrial production; weekly crude inventories; earnings from Oracle
THURSDAY: Housing starts; weekly jobless claims; Philly Fed; Earnings from FedEx
FRIDAY: Quadruple witching
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