Oct. 9 (Bloomberg) -- U.S. stocks extended a two-week rally as takeover speculation helped overcome concern about slowing earnings growth, higher oil prices and a nuclear test by North Korea.

``The market is climbing a wall of worry over geopolitics, earnings and oil,'' said Steve Neimeth, who manages about $850 million at AIG SunAmerica Asset Management in Jersey City, New Jersey. ``Investors are focusing on valuations,'' he said, and ``the market is way too cheap.''

U.S. Steel Corp., the biggest U.S. steelmaker, resumed an advance that started last week after India's Tata Steel Ltd. said it is considering acquisitions. Cablevision Systems Inc., the cable-television company that owns Madison Square Garden, surged on an offer by the founding Dolan family.

The Dow Jones Industrial Average gained 7.60, or 0.1 percent, to 11,857.81. The Standard & Poor's 500 Index added 1.08, or 0.1 percent, to 1350.66.

Anticipation that Google Inc. would buy the YouTube Inc. online-video site and that Intel Corp. will purchase shares of Nvidia Inc., the third-biggest maker of computer graphics chips, helped the Nasdaq Composite Index. The measure rose 11.78, or 0.5 percent, to 2311.77.

Alcoa Inc., the world's largest aluminum maker, rose as much as 2.7 percent before reporting earnings tomorrow. The shares closed up 25 cents at $27.99. Profit in the third quarter may more than double to 78 cents a share as the company benefited from higher prices and demand from countries such as China.

North Korea

Stocks fell at the open after North Korea said it detonated a nuclear bomb in a test. President George W. Bush condemned North Korea for its ``provocative'' announcement and urged the United Nations to take quick, decisive action.

Crude for November delivery rose 0.3 percent to $59.96 a barrel in New York. Oil climbed as high as $61.30 after OPEC said Saudi Arabia and five other members will cut production to stem a 22 percent slide in prices.

A two-month decline in oil prices and speculation that the Federal Reserve may cut interest rates sent stocks higher for the past two weeks. Even with the S&P 500 setting a five-year high on Oct. 5, the index is trading at 15 times estimated earnings. In February 2001, it had a multiple of at least 25.

Whether stocks extend their rally to a third week may depend on data confirming that slowing growth poses a bigger threat than inflation. Release of minutes from the Federal Open Market Committee's Sept. 20 meeting and the Fed's Beige Book, a survey of economic conditions in its 12 districts, may offer clues about the pace of inflation and economic growth.

Yellen on Rates

The Fed minutes will be issued Oct. 11 at 2 p.m. New York time. The Beige Book is set for release at the same time the following day.

In a speech today, San Francisco Fed President Janet Yellen said the central bank's benchmark interest rate of 5.25 percent is in a range that's ``moderately restrictive'' and ``appropriate'' to bring inflation lower.

U.S. Steel rallied $2.85 to $63.39. Nucor Corp., the second-biggest steel producer in the U.S., climbed $1.55 to $52.67.

All 14 members of the S&P Supercomposite Steel Index advanced, pushing the index up 3.1 percent. Tata Steel on Oct. 5 said it's ``reviewing a number of global opportunities'' for takeovers. Steelmakers are combining to increase bargaining power over customers and suppliers as demand climbs.

Cablevision, Google

Cablevision shares jumped $2.57, or 11 percent, to $26.50. The Dolan family offered to take the owner of Madison Square Garden and the New York Knicks private for about $7.9 billion. The Dolans bid $27 a share to try to wrest complete ownership of the company they founded in 1954. The bid is a 13 percent premium to the closing price last week.

Google increased $8.50 to $429. The company said after the close of trading that it agreed to buy YouTube for about $1.65 billion in stock.

Nvidia jumped $1.99 to $32.92 on renewed speculation the company may be acquired by Intel. The speculation began in July, when Advanced Micro Devices Inc., Intel's smaller competitor, agreed to buy Nvidia rival ATI Technologies Inc.

Among other technology shares, Research In Motion Ltd. surged $4.81 to $113.60. Merrill Lynch & Co. raised its price forecast for the BlackBerry handset maker to $135 from $110.

Stock Trading

Trading was below average because of the Columbus Day holiday. About 1.27 billion shares changed hands on the New York Stock Exchange, 18 percent less than the three-month daily average. Eleven stocks rose for every six that fell on the Big Board.

Gains in the broader market were limited as Express Scripts Inc., Caremark Rx Inc. and Medco Health Solutions Inc. dragged health-care stocks lower. UBS AG cut the companies' ratings after First DataBank, a publisher of wholesale drug prices, agreed to stop disclosing its list of medicines to settle claims that it artificially raised drug costs.

Government health-insurance programs use First DataBank's list to determine reimbursement rates for pharmacies.

Express Scripts plunged $4.96, or 6.7 percent, to $68.96 for the biggest decline in the S&P 500. Caremark dropped $2.21 to $51.19 and Medco slumped $1.36 to $55.75.

PNC Shares Fall

PNC Financial Services Group Inc. fell $3.20, or 4.4 percent, to $70.40 for the second-biggest decline in the S&P 500. The company agreed to buy Mercantile Bankshares Corp. for $6 billion in stock and cash to win more clients in the Washington, D.C. area. Mercantile rose $8.16 to $44.94.

S&P 500 shares, called Spiders, rose 8 cents to $135.09. Nasdaq-100 tracking shares, known by their QQQQ symbol, gained 14 cents to $41.55.

S&P 500 futures expiring in December added 0.40 to 1359.20 on the Chicago Mercantile Exchange. Nasdaq-100 Index futures advanced 3.75 to 1703.75.

The Russell 2000 Index, a benchmark for companies with a median market value of $611 million, rose 0.6 percent to 744.57. The Dow Jones Wilshire 5000 Total Market Index, the broadest measure of U.S. shares, climbed 0.2 percent to 13,492.60. Based on its advance, the value of stocks increased by $30.9 billion.

Alcoa Inc. (AA US)
Cablevision Systems Corp. (CVC US)
Caremark Rx Inc. (CMX US)
Express Scripts Inc. (ESRX US)
Google Inc. (GOOG US)
Intel Corp. (INTC US)
Medco Health Solutions Inc. (MHS US)
Mercantile Bankshares Corp. (MRBK US)
Nucor Corp. (NUE US)
Nvidia Corp. (NVDA US)
PNC Financial Services Group Inc. (PNC US)
Research In Motion Ltd. (RIMM US)
U.S. Steel Corp. (X US)

To contact the reporter on this story: Allen Wan in New York at awan3@bloomberg.net.

Last Updated: October 9, 2006 17:27 EDT