NEW YORK — A burst of corporate dealmaking is giving investors a shot of confidence about the economy.
Stock indexes rose more than 1 percent in light trading Monday to break a threeday slide. The Dow Jones industrial average rose 124 points for its biggest gain in more than a month, recouping much of what it lost last week.
Large acquisitions from Abbott Laboratories and Xerox Corp. pushed shares of drugmakers and technology companies higher, and the buying spread to other parts of the market as investors hoped that the $6 billion-plus deals could be a sign that takeover activity is finally picking up.
A resumption of corporate takeovers would represent an important milepost in the economy's recovery, one full year after the financial system nearly froze. Companies had grown so worried in the past year that they were hesitant to part with cash and often had trouble lining up financing.
A willingness by big companies to wager stock and borrow money to bulk up their business also sets off a guessing game over what the next takeover targets might be. Just last week Dell Inc. said it would acquire technology company Perot Systems Corp. for $3.9 billion, and earlier this month Kraft Foods Inc. made an overture for candy maker Cadbury PLC for $16.7 billion.
Stocks have surged since March as investors jockeyed to stay ahead of a strengthening in the economy, but the pace of those gains has some analysts worried thatthe advance is overdone. The willingness of companies to pursue big deals helped ease some of those worries, at least for now.
"It's encouraging to all investors when you see companies buy because basically what that says is they're in a more aggressive mode as opposed to being in the fetal position," said Mark Coffelt, portfolio manager at Empiric Funds in Austin, Texas.
The Dow rose 124.17, or 1.3 percent, to 9,789.36, its biggest advance since Aug. 21. Last week, the Dow lost 155 points following lackluster reports on housing and manufacturing. The Dow's gain puts it about 200 points from the psychological barrier of 10,000. The index fell below that level last October at the peak of the financial crisis and hasn't crossed back over it since.
The broader Standard & Poor's 500 index rose 18.60, or 1.8 percent, to 1,062.98, and the Nasdaq composite index rose 39.82, or 1.9 percent, to2,130.74.
Four stocks rose for every one that fell on the New York Stock Exchange, where consolidated volume came to 3.8 billion shares compared with 4.61 billion Friday. It was the lightest day since mid-August. Trading was light as some market participants were out for Yom Kippur, the holiest day of the Jewish calendar. Lower trading volume can skew the market's moves.
In corporate deal activity, Abbott Labs said Monday it would acquire the pharmaceutical business of Belgian chemicals maker Solvay for $6.6 billion, while Xerox Corp. agreed to buy Affiliated Computer Services for about $6.4 billion.
"It's a sign of a return to normalcy," Thomas K.R. Wilson, managing director of Brinker Capital's institutional investment group in Berwyn, Pa., said of the deals.
Charlie Smith, chief investment officer at Fort Pitt Capital in Pittsburgh, said it's a welcome sign that the credit markets are stronger when businesses like Xerox can put together a deal. "Xerox could not have done this deal back in March or April,"Smith said.
Some money managers are racing to catch up with the market's advance before the third quarter ends on Wednesday. The Dow is up 16 percent for the quarter and is on pace for its best quarter since the fourth quarter of 1998, when it rose 17.1 percent.
Abbott Labs rose in trading Monday. Abbott's purchase of Brussels-based Solvay gives the company access to emerging markets in Eastern Europe and Asia along with new therapeutic areas such as the fast-growing market for vaccines.
Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.28 percent from 3.32 percent late Friday.
The dollar was mixed against other currencies. Gold prices rose.
The Russell 2000 index of smaller companies rose 14.28, or 2.4 percent, to 613.22.
Britain's FTSE 100 rose 1.6 percent, Germany's DAX index rose 2.8 percent, and France's CAC-40 advanced 2.3 percent. Japan's Nikkei stock average fell 2.5 percent.
Business, Pages 19, 20 on 09/29/2009