Stocks Start Week With Rally

A decline in oil prices and talk of a merger between H-P and EDS help lift the major averages.
By Sarina Penn ,

Updated from 4:10 p.m. EDT

Stocks in the U.S. booked substantial gains Monday as traders welcomed a downturn in oil prices and several pieces of good news out of the tech sector, including a potential merger involving

Hewlett-Packard

(HPQ) - Get Report

.

The

Dow Jones Industrial Average

advanced 130.43 points, or 1.02%, to 12,876.31, and the

S&P 500

swelled by 15.3 points, or 1.1%, at 1403.58. The

Nasdaq Composite

was the best-performing index, spiking 42.97 points, or 1.76%, to 2488.49.

One boon for tech shares came late in the day amid word that Hewlett-Packard is in advanced talks to buy

Electronic Data Systems

(EDS)

.

The Wall Street Journal

said the deal could be worth $12 billion to $13 billion.

H-P was off 4.7%, but EDS surged 27.9%, and the prospect for a pact may have shored up hopes that merger activity is gaining traction once again after stalling amid the credit crunch.

"Deals really dry up when the market is having a rough patch," said Richard Sparks, senior equities analyst with Schaeffer's Investment Research. "Nobody wants to buy if they think the stocks are going to be lower later on. Then again, EDS had a pretty sharp downturn over the past few months, so that made it more attractive."

Robert Pavlik, chief investment officer with Oaktree Asset Management, said that this shows companies are still seeing value out there. "For stronger companies like the H-Ps, I think the credit crunch plays less of a role in their operations," he said. "These are highly capitalized and high-credit-rated companies who don't find troubles going to the market and issuing paper if need be."

Other tech names helped the sector outperform throughout the day.

Research in Motion

(RIMM)

, for example, bounced 6.9% after

unveiling the design for its new BlackBerry Bold

, a 3G smartphone seen as a rival to

Apple's

(AAPL) - Get Report

iPhone. Apple shares picked up 2.3%.

Simultaneously, the Dow Jones U.S. Software Index and the Amex Networking Index trekked higher by 1.9% and 1.7%, respectively. Dow components

Microsoft

(MSFT) - Get Report

and

IBM

(IBM) - Get Report

both rose.

Overall, stocks' breadth was positive to start the week. Winners outpaced losers by a 7-to-3 margin on both the

New York Stock Exchange

and the Nasdaq, though volume was light, reaching just 1.66 billion shares and 1.76 billion shares, respectively.

"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.

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," he said. "A lot of the activity you're seeing today is more technical in nature."

Pavlik noted that Friday's slide occurred amid the lowest-volume day since Dec. 28. "I think that's pretty telltale, that the market isn't that interested in selling things off just because oil prices are going higher," he 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 ended down $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 benefiting from the crude reprieve. Dow components

Wal-Mart

(WMT) - Get Report

and

Home Depot

(HD) - Get Report

were up 1.5% and 2.4%, respectively, and the Dow Jones U.S. Retail Index and the S&P Retail Index ramped up 2.1% and 2.7%.

At the same time, gold futures sank 90 cents to $884.90 an ounce. The U.S. dollar lost its early gains against the euro, finishing down 0.4% to $1.5540. Against the yen, however, the greenback remained higher by 0.8%.

Meanwhile, investors were overlooking plenty of bad news. For instance,

JPMorgan Chase

(JPM) - Get Report

CEO James Dimon said that the recession has just started, even if the credit crisis appears to be mostly over. Dimon, speaking at a conference, also said there is a one-third chance the contraction is "going to be pretty bad ... closer to the 1982 recession than the very mild recessions we had in 2001 and 1990."

Over in the financial sector,

MBIA

(MBI) - Get Report

lost $2.41 billion in the first quarter after $3.6 billion in unrealized losses on insured derivatives. Still, the stock took back the bulk of its Friday losses, tacking on 4.5%.

Mortgage insurer

PMI

(PMI)

also swung to a quarterly loss, and

Radian

(RDN) - Get Report

did the same when excluding unrealized gains on derivatives and hybrid securities. Keeping in those gains, the company booked a profit of $195.6 million. PMI was up 3%, and Radian shares rose 2.2%.

IndyMac

(IMB)

, a mortgage lender

lost $184.2 million

, or $2.27 a share, in the first quarter and warned that it won't achieve a profit until the plunge in housing prices eases up. Shares sank 10.5%.

HSBC

(HBC)

was up 3.1%, 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) - Get Report

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 dropped 1.5%.

XM Satellite Radio

(XMSR)

also

lost more money

in its latest quarter, missing the consensus target, but shares rose 4.2%.

XM's merger partner

Sirius

(SIRI) - Get Report

, which posted a narrowed first-quarter loss after the market closed, finished the regular session up 4.2% at $12.30. Recent late trading saw a further gain of 0.7%.

Meanwhile, confirmation came that

Cablevision

(CVC)

has agreed to pay Tribune Co. $650 million for the Long Island newspaper Newsday. Over the weekend, Rupert Murdoch's

News Corp.

(NWS) - Get Report

retracted its own $580 million offer

for the paper. Cablevision slipped 1.8%, and News Corp. ended 1.1% better.

Elsewhere, after Friday's market close

FedEx

(FDX) - Get Report

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 finished nominally higher at $90.50.

Treasury prices were erasing early gains. The 10-year note and the 30-year bond were each losing 7/32 in price to yield 3.80% and 4.54%, respectively.

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%.

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