The major stock averages ended higher Monday amid a spate of merger announcements and hopes that the U.S. economy will recover strongly. Shares of biotechnology, semiconductor, banks, pharmaceutical, communications equipment, and electrical equipment companies led the way higher.
In merger news, Vivendi (V ) and USA Networks (USAI ) announced they will form a joint venture to own USA Networks' entertainment assets and Universal Studios' assets. The deal is valued at $10.3 billion in cash and stock. The deal follows Vivendi's agreement Friday to invest $1.5 billion in EchoStar Communications Corp. (DISH ).
Biotech company Amgen (AMGN ) announced it will acquire Immunex (IMNX ) for $16 billion. Rumors about the deal surfaced last week. The deal sparked a rally in the biotech sector as investors looked for the next takeover candidates.
Alpha Industries (AHAA ) says it will acquire Conexant Systems' (CNXT ) wireless business. The combined company would be valued at about $3 billion.
And P&O Princess Cruises Plc (POC ) rejected the $4.6 billion takeover bid from Carnival Cruise Lines Inc. (CCL ), and instead will proceed with plans to merge with Royal Caribbean (RCL ).
The Dow Jones industrial average rose 80.80 points, or 0.82%, to 9,891.970, led by gains in Wal-Mart (WMT ) and Microsoft (MSFT ). The Nasdaq composite index added 34.28 points, or 1.76%, to 1,987.45, led by techs and biotechs. The broader S&P 500 index rose 11.29, or 1.01%, to 1,134.36.
But the rally did not spread to all areas of the market. "There are cross-currents going on. The news gets quieter as the year draws to a close and some economic data comes in, and there's also individual tax selling and window dressing," says Art Hogan, market strategist at Jefferies & Co. "The buyers are winning for no good reason today, though there is a bunch of M&A activity."
Bucking the uptrend were utilities and natural gas sectors, which continue to get hit from the collapse of Enron (ENE ). On Monday, Dynegy Inc. (DYN ) announced a restructuring after Moody's downgraded Dynegy's debt and commercial paper ratings on Friday. Dynegy says it plans to offer shares, sell assets and reduce expenses to free up $1.25 billion next year.
The fallout also continued to haunt Calpine (CPN ). Moody's cut its credit rating to below investment grade late Friday, citing the company's heavy debt load, lowered earnings outlook and slumping stock price.
Among other stocks in the news Monday, Ford Motor (F ) shares fell on reports that it is considering plans to cut output indefinitely and lay off workers at U.S. plants that make its best-selling Explorer sport-utility vehicle and Taurus midsize sedan.
Among analysts' comments, Merrill Lynch downgraded shares of Bed Bath & Beyond (BBBY ) because of stock price gains, while Goldman Sachs made positive comments about Micron Technology (MU ), saying it thinks the memory chip maker has seen the worst of the downturn.
In earnings news, shares of drug maker Pfizer (PFE ) rose after the company said it was comfortable with 2001 earnings per share of about $1.30, in line with the current consensus estimate, and it sees fiscal 2002 earnings in the range of $1.56-$1.60 per share. Merrill Lynch reiterated its strong buy rating on the stock.
Before the opening bell Tuesday, watch for earnings reports from electronics retailers Best Buy (BBY ) and Circuit City (CC ).
Treasuries ended lower in price on concerns that the Federal Reserve's easing cycle is all but over, and that the bull run in longer-dated maturities ended in November. Comments from St. Louis Federal Reserve governor William Poole, who said the Fed has plenty of room to maneuver rates lower, didn't provide much support.
On Tuesday, reports on housing starts and building permits will be released. S&P MMS expects housing starts to slip 0.8% to a 1.54 million unit pace in November. The housing sector has held up remarkably well this year, mostly due to low mortgage rates. However, the steady decline in rates came to an end in November, as mortgage rates rose to around 7.0% by the end of the month after hitting a record low early in the month. Not surprisingly, the rise in rates has reduced mortgage demand.
European stock markets rose after a report showed that German business confidence gained for the first time in four months. In Germany, the DAX Index jumped 158.57 points, or 3.23%, to 5,067.99. In London, the Financial Times-Stock Exchange 100 index closed with a gain of 75.30 points, or 1.49%, to 5,136.30. In France, the CAC 40 index gained 145.15 points, or 3.34%, to 4,485.17.
In Asia, the markets finished mostly lower. Japan's Nikkei lost 188.30 points, or 1.79% to close at 10,323.35 as the unwinding of shares by banks and insurance companies drove stocks lower despite a lack of any overall bearish news. Technology shares, as a result of end-of-year sales and unwinding, failed to benefit from the yen's fall in value to its weakest level in three years Friday. In Hong Kong, the Hang Seng was virtually unchanged, losing 0.33 point to close at 11,465.78.
By Karyn McCormack in New York