Stocks Reprise a Rally

The Dow gains 183 and the Nasdaq 42 in a replay of last Wednesday.
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Updated from 4:07 p.m. EDT

Stocks staged their second major rally in four days Monday as investors welcomed solid earnings in the drug sector, a

Dell

(DELL) - Get Report

upgrade and two big acquisitions.

The

Dow Jones Industrial Average

gained 182.67 points, or 1.68%, to 11,051.05, and the

S&P 500

rose 20.62 points, or 1.66%, to 1260.91. The

Nasdaq Composite

jumped 41.45 points, or 2.05%, at 2061.84. The 10-year Treasury bond was unchanged in price, yielding 5.04%. The dollar rose against the yen and euro.

Last Wednesday, the Dow rallied 212 points and the Nasdaq gained 37 after

Federal Reserve

Chairman Ben Bernanke indicated the economy is moderating, reducing inflation fears. The Dow gave back about 100 points and the Nasdaq 60 in the two intervening sessions.

"Today's rally was a reaction to a good earnings day as well as the investment-banking stories," namely the acquisitions of

HCA

(HCA) - Get Report

and

ATI Technologies

(ATYT)

, said Barry Hyman, equity market strategist with EKN Financial. "There's always a perceived value when we see deals."

About 1.58 billion shares changed hands on the

New York Stock Exchange

, with advancers outpacing decliners by a 4-to-1 margin. Volume on the Nasdaq was about 1.91 billion shares, with advancers beating decliners 3 to 1.

In the biggest leveraged buyout ever, three private equity outfits are taking hospital operator HCA private for $51 a share, or $21 billion. With assumed debt, the deal's enterprise value would clock in around $33 billion, eclipsing the storied LBO of RJR Nabisco in 1989. HCA added $1.61, or 3.4%, to $49.48.

Elsewhere,

Advanced Micro

(AMD) - Get Report

will pay $5.4 billion to acquire ATI Technologies, adding a leading supplier of graphics accelerators to its core line of computer microprocessors. The stock and cash price comes out to $18.21 an ATI share, or a roughly 24% premium to the stock's Friday close.

AMD dropped 4.8% to $17.39, while ATI Technologies surged 18.8% to $19.67.

"M&A activity always helps the market out," said Jay Suskind, head of institutional equity trading with Ryan Beck & Co. "It's good to see some stability after the selloff last week. In addition, expectations for earnings are a bit better, with rational thinking returning to the market."

Oil reversed early losses and finished higher after U.S. Secretary of State Condoleezza Rice arrived early Monday in the Middle East to press diplomatic efforts in Lebanon toward a cease-fire in the conflict with Israel. In Nymex floor trading, September crude rose 62 cents to $75.05 a barrel. Gold futures lost $7 to close at $613.20 an ounce.

By sector, the Philadelphia Oil Service Sector Index and the Amex Oil Index were higher by 3% and 2.9%, respectively, following oil's reversal. Elsewhere, the Dow Jones Transportation Average tacked 2.5%, the S&P Retail Index closed up 2.3%, and the Philadelphia Semiconductor Sector Index advanced 1.8%.

Dell rose after Citigroup raised the stock to buy from neutral, saying its second-quarter profit warning represented pricing problems that should be fixable in the third quarter. Shares of Dell, which lost 10% on the preannouncement Friday, finished higher by 4.2% to $20.75 on Monday.

To view Gregg Greenberg's video take on today's market, click here

.

Among the day's earnings news,

Merck

(MRK) - Get Report

posted a second-quarter profit of $1.5 billion, or 69 cents a share, up from $720.6 million, or 33 cents a share, a year earlier. Excluding charges, the drugmaker earned 73 cents a share. Sales increased to $5.77 billion from $5.47 billion last year. Results beat the Thomson First Call average estimate for EPS of 65 cents on revenue of $5.46 billion.

Merck also raised its 2006 earnings forecast to a range of $2.40 to $2.48 a share, excluding restructuring charges, which falls in line with the Thomson First Call consensus. Merck finished with a gain of $1.59, or 4.3%, to $38.95.

Schering-Plough

(SGP)

reported a second-quarter profit of $259 million, or 16 cents a share, reversing a year-ago loss of $48 million, or 5 cents a share. Sales rose 18% to $2.82 billion. Shares ended trading up $1.10, or 5.7%, to $20.55.

American Express

(AXP) - Get Report

said second-quarter net income fell to $945 million, or 78 cents a share, from $1 billion, or 82 cents a share, last year. Results beat the Thomson First Call consensus by 4 cents. Shares rose 4 cents, or 0.1%, to $50.66.

BellSouth

(BLS)

posted second-quarter earnings of $887 million, or 49 cents a share, up from a year-ago profit of $795 million, or 43 cents a share. Excluding nonrecurring items, the company reported earnings of $1.08 billion, or 60 cents a share. The consensus was for a profit of 57 cents a share. BellSouth gained 80 cents, or 2.3%, to $36.20.

"The market is in no position to deal with a shortfall," said Marc Pado, U.S. market strategist with Cantor Fitzgerald. "This week needs to be about hitting expectations. It also wouldn't hurt if we topped expectations on a few key earnings reports this week. Investors will be looking for some progress with Israel and the gross domestic product report on Friday."

Media company

E.W. Scripps

(SSP) - Get Report

said second-quarter net income fell to $71.1 million, or 43 cents a share, down 27% from a year ago. Income from continuing operations rose to $105 million, or 64 cents a share, from $103 million, or 62 cents a share, a year earlier. Analysts expected the company to post earnings of 60 cents a share, according to Thomson First Call. E.W. Scripps climbed by 95 cents, or 2.3%, to $42.87.

After the bell Monday,

SanDisk

(SNDK)

said it had second-quarter earnings of $96 million, or 47 cents a share, up from $70 million, or 37 cents a share, last year. Excluding items, including a stock-option expense charge, SanDisk had earnings of 58 cents a share. Revenue rose to $719 million from $514.9 million last year. The Thomson First Call average estimate was for a profit of 44 cents a share on revenue of $689 million. SanDisk finished the session higher by $2.69, or 7.2%, to $40.20.

Texas Instruments

(TXN) - Get Report

is also due to report late Monday. Analysts expect the company to post EPS of 47 cents, according to Thomson First Call.

Among rating moves, Merrill Lynch cut

Halliburton

(HAL) - Get Report

to neutral from buy, citing deteriorating confidence after the company's second-quarter earnings conference call. The stock, which dropped more than 8% on Friday, rose $1.06, or 3.5%, to $31.10.

Overseas stocks were mostly higher, with London's FTSE 100 climbing 2% to 5834 and Germany's Xetra DAX rising 2.3% to 5578. In Asia, Japan's Nikkei fell 0.2% overnight to 14,795, while Hong Kong's Hang Seng added 0.1% to 16,481.

On Tuesday,

3M

(MMM) - Get Report

,

Altria

(MO) - Get Report

,

Amazon.com

(AMZN) - Get Report

,

AT&T

(T) - Get Report

,

DuPont

(DD) - Get Report

,

McDonald's

(MCD) - Get Report

,

Legg Mason

(LM) - Get Report

and

Sun Microsystems

(SUNW) - Get Report

are expected to report.