Fed Jitters Keep a Lid on Index Gains

Stocks ticked higher Monday amid merger buzz but index gains were modest as the market awaits the Federal Reserve's rate decision later this week.

All three major indexes -- the Dow Jones Industrial Average, S&P 500 and Nasdaq -- were up less than half a percent.

How sweet it is to be loved by Warren Buffett: Wrigley shares soared on news that Buffett is teaming up with candy maker Mars to buy the gum maker for $22 billion.

Buffett confirmed the deal on CNBC Monday.

"I've been conducting a 70-year taste test -- since I was seven-years old," Buffett said, when asked why he was investing in Wrigley. "I've done the same thing with Mars products and they've had the same test results."

In other deal news, Kirk Kerkorian's Tracinda said Monday it intends to make a cash tender offer for a stake in Ford. The offer is for 20 million shares at $8.50 a share, representing a more than a 13-percent premium over Ford's closing price of $7.50 on Friday. Ford shares rose.

Ford rival General Motors was the top gainer on the Dow.

"M&A in this type of an environment, with credit being so tight, I think might send a signal that things are beginning to loosen up in terms of the credit crunch," Peter Cardillo, chief market economist at Avalon Partners, told Reuters.

Continental Airlinescalled off talks with rivalUnited Airlines due to its weakened balance sheet, adding that the soaring price of oil makes doing a merger more risky, a source told Reuters. The cost of jet fuel in New York has rocketed to $3.50 a gallon, compared with $2 a year ago.

The source also said Continental is in "advanced talks" with British Airwaysand American Airlines, owned by AMR , about a potential alliance.

United, not one to be a wallflower at the dance, is said to be in "very advanced" talkswith US Airways , two sources familiar with the talks said.

This latest wave of airline-merger talk comes just a few weeks after Delta agreed to buy Northwest , creating the world's largest airline.

Microsoft was the biggest decliner on the Dow as investors wait to see if the software giant decides to go directly to shareholders in its attempt to buy Yahoo after the deadline for Yahoo to make a decision expired on Saturday without word from Yahoo.

Financials slipped after Morgan Stanley analysts told investors to "sell the rally" in financials. The analysts warned the credit crunch is just beginning and slashed its full-year forecast for several big banks.

Morgan Stanley's top "long" picks, which have less credit sensitivity, include Bank of New York , JPMorganand PNC Financial .

The analysts advised being "underweight" in those banks with greater exposure to mortgages, including Wells Fargo and Wachovia , and those that operate in harder hit sections of the U.S. including Fifth Third Bancorpand KeyCorp . The bank is also underweight on Citigroup .

Visa shares advanced ahead of the credit-card company's earnings, due out after the closing bell Monday. This is the company's first earnings report as a public company. Analysts expect a profit of 55 cents per share.

Verizon reported its net income rose 7 percentto $1.6 billion, or 57 cents, amid stronger-than-expected growth in wireless subscribers. Adjusted profit rose to 61 cents, on target with analysts' expectations, according to Reuters Estimates.

Wednesday’s interest-rate decision and Friday’s nonfarm payroll data are likely to dominate the market sentiment as the week progresses, Omer Bhatti, head sales trader from Worldspreads, told “Worldwide Exchange,” with many market participants hoping that markets no longer need dramatic slashes in the Fed’s base rate.

“We’ve had such a run of cuts maybe a pause at this stage will probably suggest to the general market that there is stability there,” Bhatti said.

The market is pricing in a 78 percent chance of another quarter percentage-point cut, according to fed-funds futures. It's the first time in months that expectations for a reduction haven't been unanimous.

The record-setting price of oil is set to benefit the likes of ExxonMobil , Royal Dutch Shell and BP ,as they report earnings this week.

Crude oil was trading between $118 and $119 a barrel on the New York Mercantile Exchange.

This Week:

MONDAY: Visa earnings after the closing bell
TUESDAY: Fed meeting; consumer confidence; earnings from GM, Mastercard and US Steel
WEDNESDAY: Fed meeting, rate decision (2:15 p.m. ET); first read on Q1 GDP; mortgage applications; Chicago PMI; weekly crude inventories; earnings from GM, Kraft, Kellogg, P&G, Time Warner, Prudential and Starbucks
THURSDAY: Monthly auto sales; jobless claims; personal income and spending; ISM manufacturing index; construction spending; earnings from Kodak, ExxonMobil
FRIDAY: April jobs report; factory orders; earnings from Chevron, Viacom

Send comments to cindy.perman@nbcuni.com.