Health Care Leads Rally; Citigroup Rebounds

Stocks rallied Tuesday, led by health-care stocks as a key Senate-seat vote in Massachusetts today could change the course of health-care reform. Citigroup bounced back after an initial dip on disappointing results.

Merck and Pfizer led the Dow in early trading as Wall Street was closely watching a vote in Massachusettsfor the late Ted Kennedy's seat; Democrats worry their plan for health-care reform may fail if they lose the seat. Health insurers also rallied, with strong gains in Humana and Aetna.

Over on the Nasdaq, chips including Sandisk, Marvel and Xilinx were among the early leaders after RBC Capital raised its rating on Xilinx to "outperform" from "sector perform."

The Philadelphia Stock Exchange semiconductor index was up more than 1 percent.

Apple rallied after the company said it will host a special event on Jan. 27, which is expected to be a new tablet-style computer.

Citigroup hit its earnings target but missed on revenue. The stock initially opened lower but then rebounded by late morning.

Online brokerage TD Ameritrade said earnings fell 26 percent due to thin trading volume.

After the bell today, we'll get reports from Dow components IBM and CSX .

McDonald's advanced after Credit Suisse raised its rating on the stock to "outperform" from "neutral," citing several driving factors, mostly the potential from its overseas business. The brokerage cut its rating on rival Burger King .

At last, a deal at the candy counter: Cadbury accepted an improved cash-and-stock offer fromKraft Foods worth about $19 billion. Kraft raised the cash part of its original bid and lowered the stock portion, something that may ease concerns expressed about the first bid from Warren Buffett, whose Berkshire Hathaway is a major Kraft shareholder.

There was other deal news.

Tyco International will acquire Broadview Security, part of Brink's Home Security, in a $1.9 billion deal that unites two of the largest home and business security companies in North America.

A light day on the economic calendar but one report to note: The National Association of Home Builders will put out its monthly sentiment index at 1 pm ET. Economists are looking for a slight uptick in the index to a reading of 17 for January compared to December's reading of 16.

And Japan Airlineshas filed for bankruptcy protection. The carrier is slashing nearly 16,000 jobs and will remain in business thanks to backing from the government. It currently owes more than $25 billion.

— Peter Schacknow contributed to this report.