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Stocks Close Off Session Highs as Retailers Fall

Stocks trimmed gains and turned mixed amid light volume Monday as retail and technology stocks slipped. The market had been higher earlier in the session amid a flurry of M&A activity, and as investors awaited word on the fate of the Bush-era tax cuts.

The Dow Jones Industrial Average rose 18.24 points, or 0.16 percent, to 11,428.56, after rising 60 points to above its high for the year earlier in the session. The Dow and the other major indexes ended last weekon a positive note.

Caterpillar, Chevron and Merck gained, while Hewlett-Packard and Bank of America fell.

The S&P 500 eked out a 0.06 points, or 0.005 percent, to close at 1,240.46. The Nasdaq fell 12.63 points, or 0.5 percent, to 2,624.91, failing to hit a nine-day winning streak.

Most key S&P 500 sectors gained led by energy, materials and utilities, although consumer discretionary and technology fell.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell to below 17, its lowest levels since April.

VIX futures were also trading at low levels, with the VIX for December delivery trading only about a point higher the VIX itself, Nate Peterson, senior derivatives analyst at Charles Schwab told CNBC.com.

"I think the belief is, closing out the year, (traders) don’t expect a lot of volatility or a pullback to the market," Peterson said.

Congress is set to vote on a tax package compromise put forward by President Obama that would extend Bush-era tax cuts for two years. The extension is expected to pass even though it proved highly controversial with Democrats.

Treasurys had slumped early in the session anticipation the tax plan would stimulate the economy and add to inflation. The price of the 10-year Treasury note rose by the ending of the session, lowering its yield to 3.28 percent. Earlier, the 10-year yield hit a six-month high.

The dollar , meanwhile, fell against a basket of currencies as the euro rose 1.4 percent against the U.S. currency. Gold gained nearly 1 percent to settle at $1,397 an ounce.

A flurry of deals and acquisitions helped boost the market earlier in the session.

Dell agreed to buy Compellent Technologies for about $960 million in cash, as it pushes into cloud computing.

General Electric announced plans to buy Wellstream , a British oilfield services company, for about $1.3 billion.GE is the parent of CNBC.

Thermo Fisher Scientific rose after the scientific instruments maker said it will acquire Dionex for $2.1 billion to broaden its lab-equipment offerings.

Energy stocks advanced as oil rose to more than $88 a barrelon news China's industrial output topped expectations in November, and after the OPEC agreed to keep its production targets unchanged.

Cabot Oil & Gasadvanced more than 5 percent after news the independent oil and gas company received an air quality permit for a compressor station to begin construction. Chevron and Exxon Mobilalso rose.

Materials also gained with Freeport McMoran , ArcelorMittal and Posco climbing more than 2 percent each.

Tech stocks moved on ratings actions by Goldman Sachs, which resumed coverage of information technology hardware companies. Apple climbed more than 1 percent after Goldman added the tech giant to its "conviction buy" list with a price target of of $430 a share.

Other tech companies didn't fare as well: Goldman initiated Dell and Hewlett-Packard with "sell" ratings, and shares of both companies fell.

Shares of Intel slipped after Goldman Sachs said to avoid the stock in its most recent research report. The brokerage has a "neutral" rating on the stock and a $20 price target.

EMC, however, was resumed with a "buy" rating, while Goldman initiated coverage of Xerox with a "neutral" rating and a $12 price target. The brokerage resumed coverage of IBM , NetApp and Seagate Technology with "neutral" ratings.

Google , meanwhile, rose after Wedbush raised its rating on the Internet search giant to "outperform" from "neutral," and boosted the company's price target to $750 a share from $575. Wedbush said Google will benefit from social secular trends accelerating the amount of time people spend online.

Google and Apple also benefited from dismissal of a patent lawsuitagainst the company bought by Paul Allen, co-founder of Microsoft .

A Swatch Group unit effectively won a case it brought against Costco Wholesale over reselling its Omega unit watches when The U.S. Supreme Court said it would not decide a copyright infringement caseafter deadlocking 4-4.

Grocery-store chain Great Atlantic & Pacific Tea, which owns A&P, Waldbaum's and Super Fresh supermarkets, filed for bankruptcy over the weekend.

The board of Hormel Foods approved a 2-for-1 stock split, which would be a first for the maker of Spam in ten years.

Genzyme now has until Jan. 21 to consider Sanofi-Aventis' $18.5 billion cash offer.

Nike rose above its 52-week high after UBS raised the athletic retailer to "buy" from "neutral" and raised its price target to $100 a share from $84, saying the company should see double-digit growth in orders and rising earnings per share.

And Pfizer got a boost from Barron's, which said in an article over the weekend that the stock was appealing at "just 7.6 times expected earnings."

FedEx was expected to have the busiest day in its history Monday, shipping 63 million items, up from 57.5 million in the week of Dec. 13 last year. Donald Broughton, senior research analyst at Avondale Partners, told CNBC that FedEx is a "better buy" over rival UPS.

Nissan Motor delivered the first mass-market all-electric car to a technology entrepreneur in California over the weekend Japanese automaker tries to get a jump in the nascent green vehicle race.

Walt Disney gained after Evercore raised its rating on the entertainment company to "overweight" from "equal-weight" and lifted its price target for the company to $44 a share from $38.

Apparel retailers mostly lagged across-the-board Tuesday, including Chico's, Urban Outfitters, TJX Companies and Abercrombie & Fitch. Lululemon was an exception.

On the U.S. economic front, the 2010 holiday shopping season could be the brightest since the recession as respondents to the CNBC All-America Economic Surveyreported being optimistic. Still, the survey revealed real optimism remains elusive as consumers only expect to boost their holiday spending by a small amount this year.

Meanwhile, liquidity tracking company TrimTabs said it was "cautiously bullish" on U.S. stocks and said the outlook for the economy had improved thanks to recent economic data.

Also in U.S. economic news, the Federal Reserve will meet Tuesday for its monthly meeting to discuss monetary policy. The Fed is expected to confirm its flexible approach to stimulating the economy and keep its quantitative easing program, where the Fed buys assets to add liquidity, unchanged.

No major economic news was on the calendar Monday, while data on inflation, retail sales, and manufacturing are due later this week.

In China, inflation was being closely watched after policymakers stopped short of raising interest rates to cool growth in the region. China issued another selective hike to bank reserve ratios instead.

Chinese stocks ended sharply higher after the policy news, with most Asian indexes closing higher. European shares closed up for a sixth day, the longest winning streak in five months.

On Tap This Week:

TUESDAY: NFIB small biz index, PPI, retail sales, business inventories, FOMC meeting announcement; before-the-bell earnings from Best Buy.
WEDNESDAY: CPI, credit card default rates, MBA mortgage applications, New York manufacturing survey, industrial production, housing market index, oil inventories; Honeywell's 2011 outlook and Atlanta Fed Pres Lockhart speaks.
THURSDAY: Housing starts, jobless claims, Philadelphia Fed survey; before-the-bell earnings from FedEx, General Mills; after-the-bell earnings from Oracle, Accenture, Research In Motion, and Take-Two.
FRIDAY: Leading indicators, quadruple witching.

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