Dow Dances to Mergers' Song

Call it a Dow day, but certainly not a down day.

M&A speculation about Alcoa(AA Quote), a Merrill Lynch upgrade of General Motors(GM Quote), and a $7 billion share-buyback from 3M(MMM Quote) were enough to inspire the bulls on what typically would be a quiet day ahead of the Federal Reserve chairman's semiannual testimony on Capitol Hill.

The Dow Jones Industrial Average jumped 0.8%, or 102 points, to close at 12,654.85.

GM's recent strong performance and a potential Alcoa acquisition, in particular, "reconfirm" Wall Street's more-than-seven-month rally, just as the Dow Jones Transportation Average "confirmed" the rally two weeks ago by hitting a new high, says Margaret Patel, portfolio manager at Pioneer Investments.

For investors to bid up GM, they have to believe that the U.S. consumer and economy are in good shape, says Patel. For Alcoa to be acquired for $40 billion, whoever is buying it must believe that the global economy is strong, and that the metals and basic materials boom is far from over, she says.

Investors awakened to news reports that aluminum maker Alcoa may be the target of mining giants BHP Billiton(BHP Quote) or Rio Tinto(RTP Quote).

Alcoa rose 6.2% Tuesday. It has returned 16% year to date, and is up 15.5% from this time last year. BHP and Rio Tinto gained 2.4% and 3.1%, respectively, on the day.