Updated from 4:06 p.m. EST

Stocks strengthened for a second straight session Monday, led by technology, as more positive economic news and strong sales guidance from Wal-Mart ( WMT) helped restore an appetite for risk.

The Nasdaq added 30.42 points, or 1.46%, to 2120.30, bringing its two-day gain to 57 points, or 2.8%. The index was paced by its economically sensitive components, including Apple ( AAPL), up 5.7%; Yahoo! ( YHOO), up 3.9%; Staples ( SPLS), up 3.3%; and eBay ( EBAY), up 3.1%.

The Dow Jones Industrial Average gained 37.30 points, or 0.36%, to 10,440.07, and the S&P 500 rose 8.60 points, or 0.72%, to 1207.01.

"With the cross above 1200 on the S&P 500, we're now testing the market," said Barry Hyman, equity market strategist with Ehrenkrantz King Nussbaum. "If we can keep oil lower, the commodity price story becomes more tame and will filter back into the market. It's still a bit confusing. We're back within trend, and I'd play this rally for what it's worth."

About 1.89 billion shares traded on the New York Stock Exchange, with advancers beating decliners by a 3-to-1 margin. Trading volume on the Nasdaq was 1.91 billion shares, with advancers outpacing decliners 7 to 3.

In other markets, the 10-year Treasury was up 3/32 in price to yield 4.56%, while the dollar was higher against the yen and euro.

"I'm surprised at the continuation from Friday, but it's very welcome," said Paul Nolte, director of investments with Hinsdale Associates. "Lower oil and merger activity today set the tone for us. Interest rates remain stuck where they're at, though, which may be the only black mark."

The tech sector was also aided by a 1.8% gain in the Philadelphia Semiconductor Sector Index. Marvell Technology ( MRVL) was the largest gainer of the components, adding 4.5%.

Equities got an early lift from Wal-Mart, which said over the weekend that October same-store sales should rise by 4.3% from a year ago. The prediction tops its previously offered range of 2% to 4% growth. Wal-Mart was the Dow's best gainer, finishing up 4% to $47.31.

Oil fell sharply Monday as traders began to embrace the end of the hurricane season. In Nymex floor trading, crude for December delivery finished down $1.46 to $59.76 a barrel. The contract made three different runs at the $60 support level last week, each time bouncing before the end of trading. Gasoline futures were down 10 cents to $1.53 a gallon, while natural gas was lower by 85 cents to $12.20 per million British thermal units.

On the economic front, the Commerce Department said the personal consumption expenditure price index rose 0.9% during September. The increase is the largest since February 1981. Excluding food and energy, the core index was up 0.2%. Personal income rose by 1.7%, while spending was up 0.5%.

"The income data are distorted by Katrina," said Ian Shepherdson, chief economist with High Frequency Economics. "The spending data, meanwhile, are distorted by wild swings in auto sales during and after the employee-discounts-for-all-buyers programs."

Paul Mendelsohn, chief investment strategist with Windham Financial, said "the report's core inflation indicator tied to spending patterns and closely watched by Federal Reserve policymakers' rose 0.2% last month and was up 2% year over year from September 2004. This remains right at the upper end of the Fed's 1.75% to 2.00% forecast range."

The Fed meets to decide interest rate policy on Tuesday in Washington. The central bank is widely expected to raise the federal funds target rate by a quarter-point to 4%.

Hyman said "classic indications are that we'll go up 25 basis points," with no change in the Fed's statement about inflation and the economy, which will accompany the rate decision.

Also, the Chicago purchasing managers' index came in at a reading of 62.9 for the month of October, up from 60.5 in September. Economists expected the index to fall to a reading of 57.2.

Also in Washington, President Bush selected Samuel Alito, a judge with the 3rd Circuit Court of Appeals, to the position being vacated by Sandra Day O'Connor. Bush's first nominee, Harriet Miers, withdrew her name from consideration last week.

Last week was a topsy-turvy one in which the Dow swung by more than 100 points three of the five sessions. The Dow finished the week up 187 points, or 1.8%, while the S&P added 16 points, or 1.6% and the Nasdaq rose 7 points, or 0.4%. Still, at current levels, the Dow has lost 1.2% during October. The S&P 500 has fallen 1.8%, and the Nasdaq is down 1.7%.

In earnings news, health insurer Humana ( HUM) posted a third-quarter profit of $49.9 million, or 30 cents a share, down about 40% from last year because of a legal expense. Before items, earnings were 60 cents a share, beating estimates by 9 cents a share.

Humana said the impact of Katrina and the charge would leave full-year earnings between $1.86 to $1.88 a share, although earnings before the items should be in line with Wall Street estimates of about $2.12 a share. Shares of Humana added 47 cents, or 1.1%, to close at $44.39.

Valero ( VLO) posted third-quarter net income of $862 million, or $2.94 a share, up from $434 million, or $1.57 a share, a year ago. Excluding items, the energy company earned $1.3 billion, or $4.37 a share. Analysts expected EPS of $4.23, according to Thomson First Call. Valero rose by $5.74, or 5.8%, to $105.24.

Kellogg ( K) posted third-quarter earnings of $274.3 million, or 66 cents a share, up from $247 million, or 59 cents a share a year ago. Revenue climbed to $2.62 billion from $2.45 billion a year ago. The Thomson First Call consensus was for earnings of 64 cents a share on revenue of $2.58 billion.

Looking ahead, Kellogg raised its full-year earnings forecast to $2.32 to $2.34 a share from its previous range of $2.30 to $2.33 a share. The company also increased its 2005 stock buyback program to $675 million while authorizing an additional $650 million program for 2006. Shares fell by $2.29, or 4.9%, to $44.17.

On Tuesday, earnings reports are expected from Procter & Gamble ( PG), Qwest ( Q), Sun Microsystems ( SUNW), Colgate-Palmolive ( CL) and Electronic Arts ( ERTS).

Chiron's ( CHIR) days as an independent public company are numbered after Novartis ( NVS), which owns 42% of its stock, agreed to acquire the rest for $5.1 billion. The takeout price is $45 a Chiron share in cash. Chiron gained 74 cents, or 1.7%, to $44.14.

Also in M&A activity, Barrick Gold ( ABX) has offered $9.2 billion in cash and stock to purchase Placer Dome ( PDG). The offer is a 24% premium to Placer Dome's closing price on Friday of $16.51. Placer was up $3.44, or 20.8%, to finish at $19.95.

Level 3 Communications ( LVLT) agreed to buy WilTel from Leucadia National ( LUK) for 115 million shares and $370 million in cash. The deal excludes certain assets and liabilities of WilTel. The pact should close in the first quarter.

Shares of Level 3 gained 18 cents, or 6.7%, to $2.88. Leucadia climbed by $1.37, or 3.3%, to close at $42.96

Saks ( SKS) on Monday sold 142 of its department stores to Bon-Ton ( BONT) for $1.1 billion in cash. With the deal, Bon-Ton will expand into the Midwest. Bon-Ton would also assume about $85 million of liabilities, including about $35 million in capitalized leases.

Saks gained $1.49, or 8.9%, to $18.15, and Bon-Ton added $3.39, or 20.4%, to $20.05.

Among ratings moves, J.P. Morgan cut CVS ( CVS) to neutral from overweight while it upgraded Walgreen ( WAG) to overweight from neutral. Walgreen rose 73 cents, or 1.6%, to $45.43. CVS lost 71 cents, or 2.8%, to $24.41.

Overseas markets were higher after Friday's 1.5% rally on the Dow. In London, FTSE 100 was up 2% to 5317, while Germany's Xetra DAX was adding 2.1% to 4929. In Asia, Japan's Nikkei rose 2% overnight to 13,607, while Hong Kong's Hang Seng gained 1.2% to 14,386.

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