Stocks closed with modest gains as investors shrugged off sharp declines in China and higher energy prices, as mergers activity continued.
"Right now we're in a glass-half-full type of mood, the market just doesn't seem to go down," said Al Goldman, chief market strategist at A.G. Edwards. "But everybody including my shoeshine person knows the market is overbought. There are two ways we can correct: either through a cardiac arrest-type of bloodletting or wearing people out, which is what we seem to be going through."
The Dow Jones Industrial Average and the S&P 500 each closed at a new record, although overall gains were limited. The Nasdaq Composite also ended higher amid strength in semiconductor stocks as well as computer hardware shares.
China's stock market fell 8% in the wake of increased actions from securities regulators, but global markets were little changed on the sharp drop. Some experts said world markets may be becoming less sensitive to short-term moves in China.
"China's economy is what matters, and it still looks strong -- that is what matters to global markets," said Alec Young, market strategist at S&P Equity Research. "We would focus on the economic data out of Beijing and shrug off short-term volatility in the Chinese local market."
"One of the worries has been the Shanghai market, but it has demonstrated it can't affect our market, not for the long-term," said Frank Cappiello, managing director at Montgomery Brothers.
Acquisitions activity continued, with most of the attention on a report from the Wall Street Journal that News Corp.'s CEO Rupert Murdoch could concede to tighter editorial controls if the company's proposed acquisition of Dow Jones goes ahead. Members of the Bancroft family, which controls Dow Jones, met News Corp. representatives to discuss the acquisition Monday.
Flextronics International , the largest electronics manufacturing services firm in the United States, said it will buy rival Solectron for $3.6 billion in a cash and stock deal.
Palm said it sold a 25% stake in the company for $325 million to a private equity group and said former Apple chief financial officer and former iPod guru Jon Rubenstein will join Palm's board.
Palm is set to face stiff competition in the smartphone market with Apple's iPhone officially scheduled to hit the market on June 29.
Accredited Home Lenders , a struggling subprime mortgage lender, agreed to be acquired by private equity firm Lone Star for $400 million in cash. Under terms of the deal, Lone Star will pay Accredited Home stockholders $15.10 a share, a 10% premium over its closing price Friday.
Shares of Onyx Pharmaceuticals rose after a study found that Nexavar, a drug used to treat kidney cancer, extended the life of patients with advanced liver cancer in a clinical trial. Onyx announced the results at ASCO, an annual cancer conference.
The energy sector turned in the day's best group performance thanks to higher crude oil prices, while consumer discretionary stocks closed higher following strength in Wal-Mart shares.
Retail giant Wal-Mart Stores was the Dow's big winner, gaining 3.5% on upgrades from several analysts. The company recently said it would decrease the number of planned U.S. store openings by at least 25% this year.
Krispy Kreme said its first-quarter loss widened to $7.4 million, or 12 cents a share. Analysts polled by Thomson Financial were expecting earnings of 5 cents a share.
In economic news, factory orders rose less than expected. Factory orders rose 0.2% in April compared to a rise of 4.1% in March. Economists predicted a 0.6% rise in orders.
New York light sweet crude futures jumped 1.7%, topping $66 a barrel on concerns that a tropical cyclone developing in the Indian Ocean could disrupt operations in the Persian Gulf.
Investors were also keeping a close eye on interest rates, as the yield on the 10-year benchmark has creeped toward the 5% mark.
Treasury prices gained, sending yields lower.
European Shares Close Lower
European shares closed lower after a plunge in the Shanghai Composite index worried investors. But merger and acquisition news gave investors some reason to buy.
The London FTSE-100, Frankfurt DAX and Paris CAC-40 all finished down.
Companies in the M&A arena included Dutch financial-services company SNS Reaal, which agreed to buy Axa'sDutch insurance businesses for $2.35 billion. The move almost doubles SNS' market share.
And in the U.K., Whitbread will sell its gym chain David Lloyd Leisure to a private-equity consortium for $1.8 billion, as the group concentrates on its more profitable components.
Meanwhile, Royal Bank of Scotland is looking to auction off British utility Southern Water for about $7.9 billion, sources familiar with the situation told Reuters Sunday.
And international relations were strained at the G8 summit in Germany as Russian President Vladimir Putin threatened to retarget his countries nuclear weapons at Europe if the U.S. went ahead with a missile defense shield near Russia’s borders.
Asian Shares Mostly Higher
Asian stocks pared early gains as a steep fall in mainland Chinese shares alarmed investors. But South Korea and Australia closed at record levels.
Tokyo's Nikkei 225 Average finished just a touch higher to close at its highest in three months as Komatsu jumped on strong corporate capital spending data, but worries about falls in Chinese stocks curbed gains. Mitsui O.S.K. Lines and other shipping firms sailed higher following Credit Suisse upgrades and Toyota Motor rose after its strong U.S. sales data for May.
In South Korea, Seoul shares climbed to their sixth straight record close as exporters such as
Hyundai Motor rose after strong U.S. economic data on a day that saw the main index dive from its session high only to rebound later.
Last week's hike in stamp duty on stock trades weighed heavily on Chinese share prices, despite state-run newspapers seeking to reassure investors in front-page articles that the move was for the long-term benefit of the market. Investors are also concerned that should the stamp duty rise fail to rein in speculation, regulators will take further tightening steps. Small-cap speculative shares continued to tumble while the index was also dragged down by several heavily weighted stocks including oil refiner Sinopec, which fell more than 9% after rising sharply last week.
Hong Kong stocks were higher by 0.2%, as investors took their cues from strong U.S. economic data while shrugging off sharp declines in mainland equities.
Singapore's Straits Times Index hit a new all-time high led by gains in Singapore Exchange and Parkway Holdings. SGX surged as much as 9.6% to a new high of S$8.60, on hopes that it would succeed in attracting more Vietnamese listings, in line with its aim to be a regional bourse.