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Stocks Open Week With Rally

Sarina Penn

Stocks in the U.S. rose Monday as traders welcomed a downturn in oil prices and a potentially giant deal in the technology sector involving Hewlett-Packard (HPQ Quote).

The Dow Jones Industrial Average advanced 133 points, or 1%, to 12,880, and the S&P 500 swelled by 15 points, or 1.1%, at 1404. The Nasdaq Composite was the best-performing index, spiking 43 points, or 1.8%, to 2488.

Equity measures were strong for most of the day as last week's oil rally cooled off a bit, but picked up even more steam after The Wall Street Journal said H-P is in advanced talks to buy Electronic Data Systems (EDS Quote) for $12 billion to $13 billion, according to people familiar with the matter.

H-P itself was off 5.5%, but EDS surged 27.9%, and the deal shored up hopes that merger activity is gaining traction once again after stalling amid the credit crunch.

Other tech names helped the sector outperform, as well. Research in Motion (RIMM Quote), for example, bounced 7.5% after unveiling the design for its new BlackBerry Bold, a 3G smartphone seen as a rival to Apple's (AAPL Quote) iPhone. Apple shares were picking up 2.3%.

Simultaneously, the Dow Jones U.S. Software Index and the Amex Networking Index trekked higher by 1.9% and 1.4%, respectively. Dow components Microsoft (MSFT Quote) and IBM (IBM Quote) were adding 2% and 0.8%.

"It looks to me like a lot of investors believe [last week's] pullback provides an opportunity to step back into the market," said Paul Mendelsohn, chief investment strategist with Windham Financial. "It got too far ahead of them, and they've felt like they've been missing it, and they didn't want to chase it, so now they're picking up bargains."

He also noted that the S&P tagged its 20-day moving average in the prior session's selloff. "That's the natural point for the market to stop here, so there's basically a support right at that level. A lot of the activity you're seeing today is more technical in nature."

Robert Pavlik, chief investment officer with Oaktree Asset Management, noted that Friday's slide occurred amidst the lowest-volume day since Dec. 28 of last year, meaning trading activity registered below even the thinly traded rally that has marked most of 2008.

"I think that's pretty telltale, that the market isn't that interested in selling things off just because oil prices are going higher," Pavlik said. "I get a sense from the market that many are expecting a pullback in oil, and what's been driving it is largely speculation."

A new record for crude oil accompanied the last session's equities plunge, but today futures were in retreat, and that appeared to help bolster investor sentiment. Crude lost $1.73 at $124.23 a barrel.

Even though the nationwide average for gas prices at the pump touched an all-time high of $3.718, according to AAA, retailers were taking benefit from the crude reprieve. Dow components Wal-Mart (WMT Quote) and Home Depot (HD Quote) were up some 2% apiece, and the Dow Jones U.S. Retail Index and the S&P Retail Index ramped up 2% and 2.6%, respectively.

At the same time, gold futures lost 90 cents to $884.90 an ounce. The U.S. dollar lost grip on its early gains against the euro, and was recently softening by 0.5% to $1.5552. Against the yen, however, the greenback remained higher by 0.8%.

Back on the corporate side, MBIA (MBI Quote) lost $2.41 billion in the first quarter as MBIA took a $3.6 billion hit in unrealized losses on insured derivatives. Still, the stock took back the bulk of its heavy Friday losses, when insurance giant AIG (AIG Quote) reported a big shortfall of its own. MBIA shares were tacking on 4.7%.

"You saw it with AIG," said Mendelsohn. "We had some negative news, and we did some damage, but we didn't really knock the daylights out of financials."

Of MBIA, he added, "She's up, but that's still an ugly-looking chart."

Mortgage insurers PMI (PMI Quote) also swung to a quarterly loss, and Radian (RDN Quote) did the same when excluding unrealized gains on derivatives and hybrid securities. Keeping in those gains, said Radian, the company booked a profit of $195.6 million. PMI was lately up 2.3%, and Radian shares rose 3%.

Also swinging to a first-quarter loss was mortgage lender IndyMac (IMB Quote). The firm, which lost $184.2 million, or $2.27 a share, warned that it won't achieve a profit until the plunge in housing prices eases up. Shares were plunging 10.5%.

HSBC (HBC Quote) was up 2.9%, however, after saying first-quarter earnings climbed from last year, thanks to its success in emerging markets such as Asia. That came even as the Britain-based bank wrote down $2.6 billion in assets and doubled its loan-impairment charges.

Away from financials, Sprint Nextel (S Quote) saw choppy trading after sharply widening its first-quarter loss to $505 million, or 18 cents a share, as it continued to lose subscribers. Stripping out one-time expenses, Sprint made 4 cents a share, or 2 cents better than expected, even as revenue fell short. Shares were lately down 2.4%.

XM Satellite Radio (XMSR Quote) also lost more money in its latest quarter, missing the consensus target, but shares rode 4.3% higher. XM's merger partner Sirius (SIRI Quote), which is expected to post its results following the close of trading, moved up 4.2%.

Meanwhile, confirmation came that Cablevision (CVC Quote) has agreed to pay Tribune Co. $650 million for the Long Island newspaper Newsday. Over the weekend, Rupert Murdoch's News Corp. (NWS Quote) retracted its own $580 million offer for the paper. Cablevision slipped 2.4%, and News Corp. was hugging the flat line.

Elsewhere, after Friday's market close FedEx (FDX Quote) said harsh economic conditions and climbing fuel prices have squeezed its bottom line, and the package-delivery outfit slashed its current-quarter earnings forecast. Shares were little changed at $90.65.

Treasury prices were erasing early gains. The 10-year note lost 4/32 in price to yield 3.79%, and the 30-year bond slipped 2/32 in price, yielding 4.53%.

Markets abroad were mixed. In Asia, Tokyo's Nikkei 225 added 0.6% overnight. Hong Kong was closed. Among European exchanges, the FTSE 100 in London and the Paris Cac finished up roughly 0.3% apiece, and Germany's Xetra Dax climbed 0.5%.