Stocks Merry Ahead of Holiday

Dealmaking helps the major averages build on Friday's rally.
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Updated from 12:39 p.m. EST

Stocks in the U.S. extended their gains Monday, as a cash infusion for

Merrill Lynch

(MER)

bolstered sentiment for the few traders participating in the holiday-shortened session.

The

Dow Jones Industrial Average

rose 98.68 points, or 0.73%, to 13,549.33, closing near its highs of the session. The

S&P 500

rose 11.99 points, or 0.81%, to 1496.45. The

Nasdaq Composite

added 21.51 points, or 0.8%, to 2713.50.

With the market closing three hours early ahead of the Christmas holiday, volume was light. About 1.24 billion shares changed hands on the

New York Stock Exchange

, with advancers beating decliners by a 3-to-1 margin. On the Nasdaq, only 733,000 shares were traded, as winners beat losers 3 to 2.

While there was little corporate news, Merrill was in the spotlight after announcing two separate deals that will help boost its capital position. Shortly after the opening bell, the brokerage giant said it has received a combined $6.2 billion cash boost from Singapore's Temasek Holdings and Davis Selected Advisors.

Earlier,

General Electric's

(GE) - Get Report

finance arm, GE Capital, said it will purchase most of Merrill's middle-market commercial finance business. The deal is expected to add more than $10 billion in assets to GE Capital during the first quarter of 2008.

Shares of Merrill fell $1.64, or 3%, to $53.90, after media reports indicated that the stock sale will come at a discount to its current price.

Still, financial indices gained ground as the Temasek investment showed that foreign investors continue to have an appetite for the beleaguered sector. The NYSE Financial Sector Index gained 1.6%, the Amex Financial Sub Index rose 1.4%, and the Amex Securities Broker/Dealer Index tacked on 0.4%.

Retail stocks also got a lift, led by

Target

(TGT) - Get Report

. Earlier, William Ackman's hedge fund Pershing Square boosted its stake in the retailer to almost 10%. Target added $1.79, or 3.5%, to close at $52.47.

Among other retail names,

Dillard's

(DDS) - Get Report

,

Sears Holdings

(SHLD)

,

Macy's

(M) - Get Report

,

Nordstrom

(JWN) - Get Report

, and

Saks

(SKS)

were all higher by 1.6% or more.

In other deal news,

Alcoa

(AA) - Get Report

said late Friday that it agreed to sell its consumer and packaging business to New Zealand's Rank Group for $2.7 billion. Shares of the Dow component jumped 66 cents, or 1.8%, to $37.01.

Elsewhere,

United Rentals

(URI) - Get Report

ended its merger agreement with Cerberus Capital Management after losing a legal battle to keep the deal alive. Shares of the rental-equipment firm ended up 79 cents, or 4.4%, at $18.70.

Monday's gains built on a rally Friday, when stronger-than-expected economic data and blowout earnings from

Research In Motion

(RIMM)

sent stocks jumping.

The Dow rose 205.01 points, or 1.55%, to 13,450.65. The S&P 500 added 24.34 points, or 1.67%, to 1484.46, while the Nasdaq jumped 51.13 points, or 1.94%, to 2691.99.

In the absence of any economic data, U.S. Treasury prices were sliding. The 10-year note eased 10/32 in price, yielding 4.21%. The 30-year bond lost 18/32 in price, yielding 4.61%.

Commodity prices finished the session with gains. Crude oil was up 27 cents to $93.58 a barrel, and gold and silver futures finished slightly higher.

Overseas markets were solidly higher ahead of the holiday. In Asia, Hong Kong's Hang Seng Index finished 1.8% higher overnight. Among European bourses, London's FTSE tacked on 0.7% and the Paris CAC 40 added 0.2%.

The U.S. markets, closed for Christmas Tuesday, will reopen Wednesday.