About $13 billion flowed into hedge funds in November, representing the fifth straight month of inflows, and the most since February 2010, according to TrimTabs Investment Research and BarclayHedge.
Equity long-short funds attracted the most cash with $2.5 billion flowing into those funds, TrimTabs and BarclayHedge said. According to the firms, hedge funds returned 11.6 percent in 2010, which is less than the 12.8 percent gain of the S&P 500 last year.
Meanwhile, the Federal Reserve will turn over a record $78.4 billionto the Treasury Department, $31 billion more than a year ago, as securities portfolios generated huge profits in 2010, according to the U.S. central bank.
And Atlanta Federal Reserve Bank President Dennis Lockhart offered some optimistic comments that the economy is seeing signs of a recovery. He also said he remained comfortable with his decision early in November to support the quantitative easing program.
"(T)he economy seems to have gained durable momentum as we begin 2011," Lockhart said in comments prepared for delivery. "While things are looking better, I don't expect a quick fix."
A flurry of M&A activity took center stage. In a development Monday afternoon, Dominion Resources made a last-minute offer to buyboth Duke Energy and Progress Energy, according to a CNBC report. Duke Energy had reached a deal to buy Progress Energy for $46.13 a share to create the nation's largest energy company. The Virgina-based Dominion said it would buy each at a 10-to-15 percent premium to their stock prices, CNBC said, citing people familiar with the situation.
Also in focus was DuPont, which offered to buy Danish food ingredients and enzymes firm Danisco for $5.8 billion. The U.S. chemicals firm plans to use the deal to boost its position in the food sector.
Johnson & Johnson reportedly approached Smith & Nephew to buy the European maker of replacement knees and hips, but was rejected. Smith & Nephew's ADRs gained.
And Sara Lee gained after the food producer was rumored to be target of an acquisition by private equity firms including Apollo Global Management.
Verizon advanced slightly amid news the wireless carrier may announce plans this week to sell Apple's iPhone, giving a boost to the tech giant. Some analysts believe the move could be critical for Apple. Shares of AT&T fell on the news and as Hudson Square Research downgraded the wireless giant to "hold" from "buy."
Meanwhile, Standard Microsystems plunged almost 10 percent after the chipmaker said it would acquire Conexant Systems for about $200 million in a cash-and-stock deal, in an aim to strengthen its foothold in the automotive and industrial markets. Conexant shares bounced roughly 15 percent.
Also in the semiconductor sector, AMD shares gained after Nomura and Morgan Stanley boosted their ratings on the tech firm to "buy" from "neutral" and "equalweight" from "underweight," respectively.
FBR also raised price targets for several semiconductor stocks, including Semiconductor to $15 a share from $13 and Qualcomm to $55 a share from $51. Nvidia's shares, meanwhile, also gained after FBR raised the semiconductor company's price target to $16 a share from $14, and Wedbush raised its price target to $18 a share from $10.
The price of oil gained to close at $89.25 a barrel after a major Alaskan pipeline shut down. But energy stocks declined, including BP , which was among the oil producers forced to shut the pipeline down.
ExxonMobil and Valero Energy also slipped after both oil giants were downgraded by Barclays to "equal weight" from "overweight."
UBS, meanwhile, upgraded the financial sector to "overweight" from "market weight," saying financials should do well because of improving loss trends, a rise in loan demand, a steeper yield curve and attractive valuations. The brokerage said large banks and brokers will benefit most from the trends.
Bank of America advanced, while most other big banks and brokerages, including JPMorgan, Goldman Sachs and Morgan Stanley slid. JPmorgan will be releasing earnings on Friday.
The sector was hit hard on Friday and remained under pressure Monday after news Massachusetts' top court ruled Wells Fargo and US Bancorp failed to show they held mortgages when they foreclosed on two homes.
Meanwhile, the 19 largest banks were bracing for a new round of stress tests, which will determine whether the banks can buy back stock or raise dividends in coming months.
Also, FBR cut Wells Fargo, Sterling Financial and Flagstar Bancorp to "market perform" from "outperform."
UBS also downgraded the health care sector to "market weight" from "overweight" citing concerns with patent expirations for some pharmaceutical companies as well as uncertainties surrounding implementation of health care legislation.
Most health care stocks were lower across the board, including Humana , Beckton Dickson and Eli Lilly .
Meanwhile, Genzyme shares rose after the biotech firm confirmed that discussions are ongoing between its financial advisors and financial advisors from French drugmaker Sanofi-Aventis .