Stocks Open Week With Rally

Updated from 2:36 p.m. EDT

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."