Stocks rose modestly as M&A news lifted stocks, although trading was light and largely directionless.
The Dow Jones Industrial Average rose more than 10 points after edging up to the highest level since June 2008 on Monday. The Nasdaq, however, fell slightly on Monday.
Among Dow components, Microsoft, Intel and Cisco gained, while Pfizer and Caterpillar slipped.
The S&P 500 and the Nasdaq traded flat to higher. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell to just above 17.
Among key S&P 500 sectors, consumer discretionary and technology gained, while health care slipped.
Texas Instruments$6.5 billion cash bid for National Semiconductor appeared to lift tech stocks across the board.
National Semiconductor shares soared more than 70 percent, as several brokerages raised their ratings and price targets on the stock. Meanwhile, Citigroup raised its price target on Texas Instruments to $42 a share from $39.
"We’ve been watching a lot of the tech stocks, they are obviously acting pretty well," said Peter Costa, president, Empire Executions, who said he was invested in both companies.
Otherwise, Costa added, the market has been making incremental moves amid "anemic" volume. "It's trying to find a direction and it hasn’t found it yet," Costa said.
Shares of most rival semiconductor firms gained as well, as the iShares PHLX SOX Semiconductor Sector Index Fund jumped. ON Semiconductor , Micrel and NetLogic Microsystems all advanced.
Intel also rose despite news that Canaccord Genuity lowered its price target for the chip maker to $19 a share from $22, citing a slowdown in the production of personal computers in the second quarter. "We believe demand concerns for notebooks and the potential for server share shift in the back half of the year could pressure the stock," Canaccord semiconductor analyst Bobby Burleson said.
However Cree sank after Deutsche Bank cut the chip and LED company's price target to $45 a share from $55, and its rating to "underweight" from "equalweight," citing lower prices for its products.
Ciena gained after news Bank of America Merrill Lynch raised its rating on the communications networking company to "buy" from "neutral."
Also in M&A news, Diamond Foods rose more than 10 percent after news it has agreed to a $1.5 billion mergerwith Proctor & Gamble's Pringles. Shares of Procter & Gamble fell slightly.
In stocks, portfolio managers may need to reconfigure their holdings Tuesday after news the Nasdaq OMX will rebalance the Nasdaq-100 stock index on May 2, bringing the weighting of Apple down from about 20 percent to 12 percent.
Apple shares slumped less than 1 percent, after dropping more than 3 percent earlier. The index is widely followed by hundreds of funds, including PowerShares QQQ exchange-traded fund.
KB Home sank more than 9 percent after the homebuilder posted a wider quarter loss than expected as housing revenue sank 25 percent, and orders fell 32 percent.
Shares of Southwest Airlines stabilized after the airliner said it completed inspections of its older Boeing 737 planes, and held back four, CNBC reported. Boeing traded flat to lower.
Walgreen gained after the pharmacy reported same-store sales rose 3 percent in March, which was more than expected.
One concern for investors are persistently high oil prices. London Brent crude rose to near 2 1/2-year highs, with continuing violence in the Middle East and North Africa supporting prices, while U.S. light crude traded above $108 a barrel.
In the U.S., investors Federal Reserve President Ben Bernanke suggested Mondaythat the Fed is not yet ready to start tightening monetary policy despite an improving economy.
Bernanke said a recent rise in prices was driven by a spike in global commodity prices and was unlikely to persist.
The Fed releases the minutes of the latest Federal Reserve Open Market Committee meeting at 2 p.m. The report could offer further clues on whether the Fed is likely to raise rates in the near term.
In economic news, the Institute for Supply Management's indexof non-manufacturing activity fell to 57.3 in March from 59.7 in February, which was a five-year high. Economists surveyed by Reuters had expected the index would slip to only 59.5, according to the median forecast.
Also pressuring the markets was news in Europe that Moody's Investor's Service downgraded Portugal'ssovereign debt by one notch, reigniting fears that the country will need to seek a bailout. And in Asia, China's central bank boosted interest rates for the fourth time since October, a move designed to counter inflation, but is also expected to slow growth around the world.
Also the Nikkei business newspaper reported the views of economists who expect the Japanese economy will have contracted by 0.6 percent in the first quarter, and will contract another 2.6 percent in the second. Growth will return to normal by third quarter, economists surveyed said/
European shares rose to a four-week closing high, led by the energy sector.
On Tap This Week:
TUESDAY: FOMC Minutes; Kocherlakota speaks, Plosser speaks.
WEDNESDAY: Weekly mortgage applications oil inventories, Treasury STRIPS; Earnings from Monsanto before-the-bell and Bed Bath & Beyond after-the-bell.
THURSDAY: Monthly chain-store sales, Bank of England Announcement, European Central Bank announcement, jobless claims, consumer credit, money supply; Lacker speaks; earnings from Constellation Brands before-the-bell and Rite Aid after-the-bell.
FRIDAY: Wholesale trade.
More on CNBC.com