Updated from 4:15 p.m. ESTStocks reversed early losses and closed higher Monday afternoon amid seemingly dovish comments from a Federal Reserve official and a spate of M&A activity. The Dow Jones Industrial Average rose 25.48 points, or 0.21%, to 12,423.49, and the S&P 500 added 3.13 points, or 0.22%, to 1412.84. The Nasdaq Composite was up 3.95 points, or 0.16%, at 2438.20. The major indices rebounded after Fed Vice Chairman Donald Kohn said in a speech that economic growth will be moderate but sustainable in 2007, while inflation pressure is expected to weaken. "The economy appears to be weathering the downturn in housing with limited collateral effects, and inflation appears to be easing with the aid of lower energy prices, well-anchored inflation expectations, and competitive labor and product markets," Kohn said, speaking in Atlanta. Still, he warned that a decrease in inflation was "by no means assured." "Things seem to fit a scenario of expectations that the economy is slowing, but the inflationary prospects seem under control," said Barry Hyman, equity market strategist with EKN Financial. "Energy prices lately are aiding that case." Traders have been hoping that the Fed will cut rates sometime in 2007, though recent data have shown economic strength. On Friday, stocks dropped on a stronger-than-expected report on the labor market, fueling concerns that the Fed not only won't be in a rush to lower rates but could potentially raise them. The Dow dropped 82 points, the S&P 500 lost 8.6 points, and the Nasdaq fell 19.