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Merger Activity Trumps FOMC Anxiety

The inherent optimism of M&A activity (and speculation thereof) gave the stock market a boost ahead of the Federal Reserve's final meeting of 2006.

The stock market rose modestly Monday amid uncertainty about the future of the U.S. economy and the direction of interest rates. While most expect the Fed to stay on hold, investors will scour the accompanying statement for hints at future rate cuts, as recent data point to declining inflation threats.

All three major indices finished the day up 0.2% with the Dow Jones Industrial Average closing at 12,328.48, the S&P 500 at 1413.04 and the Nasdaq Composite at 2442.86.

The market on Monday was moving on speculation rather than on real deals. Shares of Internet travel company Sabre Holdings (TSG) were up 7.6% on reports that the company will be bought for more than $4 billion by a private equity firm. Biomet (BMET) gained 4% on speculation that the U.K.'s Smith & Nephew and/or Johnson & Johnson (JNJ - Get Report) might make a bid for the company.

In actual deal-making, @Road (ARDI) jumped 7.9% after agreeing to be acquired by Trimble Navigation (TRMD) for about $496 million in cash and stock.

Also, American International Group (AIG) gained 0.9% after the insurance company announced that it agreed to buy U.S. port operations from Dubai Ports World.

"M&A always boosts the market," says Art Hogan, chief market analyst at Jefferies & Co. "It is a vote of support."

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