NEW YORK ( TheStreet) -- Stocks closed higher Monday as a surge in M&A activity, a rise in consumer spending and reports that a bailout plan for Greece is in the works eased concerns about the recovery's sustainability.

The Dow Jones Industrial Average closed up 79 points, or 0.8%, to 10,404. The S&P 500 gained 11 points, or 1%, to 1116 and the Nasdaq went higher by 35 points, or 1.6%, to 2274.

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"Our concern -- and a broad swatch of the market's concern -- is not whether we're in a recovery, but whether we'll be able to sustain the recovery," said Jim Baird, partner and chief investment strategist for Plante Moran Financial Advisors.

Baird said the market is looking for signs that the recovery will hold up even after there's a handoff to consumers when government spending fades.

"Signs that there will be some favorable resolution to Greece debt issues, all the M&A news -- which is generally deemed to be a bullish factor for equities -- and signs that consumers are feeling better enough about their situations to ramp up spending, all of these factors came together today to make markets more positive about the recovery's sustainability," Baird said.

Personal spending outpaced expectations in January, rising 0.5% compared with the 0.4% increase that economists had been expecting. Personal income, however, grew a meager 0.1% in January, after rising 0.3% in December. Economists had been projecting a 0.4% increase.

"We need to see improvement in both the willingness and ability of consumers to spend. Unfortunately, constraints on credit availability and expectations for muted job creation present substantial headwinds to a resurgent consumer," Baird cautioned.

After the closing bell, women's clothing retailer Dress Barn ( DBRN), like Dillard's ( DDS) in the morning, said it swung to a profit and beat earnings forecasts. Dillard's gained 18.7% after its morning report, while Dress Barn went 3.5% higher before its late-afternoon earnings reveal.

Retail firms finished broadly higher, as the S&P Retail Index gained 1.6% on the day

Investors largely shrugged off news from the Institute for Supply Management showing that its manufacturing index for February came in at 56.5, which was weaker than the reading of 58 that Wall Street had been expecting.

Technology shares made some of the biggest gains Monday. Intel ( INTC) turned in the Dow's best climb. Hewlett-Packard ( HPQ) and Microsoft ( MSFT) were also among the Dow's best percentage advancers.

The semiconductor space got a boost from SanDisk ( SNDK), which bounded higher by 11.9% after raising its own outlook and receiving an analyst upgrade.

Separately, semiconductor sales soared in January, up 47.2% since a year ago, according to a release from the Semiconductor Industry Association. In a statement, SIA President George Scalise noted "upside potential for 2010" above prior forecasts, though consumer spending will remain "key to sustaining these trends."

The Philadelphia Semiconductor Index added 3.1% Monday.

In other macroeconomic news, construction spending in January fell 0.6%, which was in line with economists' forecasts and narrowed from December's decline of 1.2%.

Lifting sentiment were reports that details of a bailout deal for Greece are being discussed. Investors awaited an announcement from Europe, but initial reports suggested France and Germany would guarantee Greece's debt, provided that the country enact deep spending cuts and increase taxes.

Mergers and acquisitions dominated the morning's news, most notably with American International Group's decision to sell its Asian unit to London-based Prudential for $35.5 billion. The sale will help AIG repay U.S. bailout funds. AIG's stock gained $1.01, or 4.1%, to $25.78.

Biotech-equipment maker Millipore ( MIL) agreed to be acquired by Germany's Merck in a deal worth roughly $7.2 billion. Millipore shares surged 11.1%, adding $10.49, to $104.90.

MSCI ( MXB), a provider of investment decision support tools, agreed to buy risk advisory firm RiskMetrics ( RISK) in a deal worth $1.55 billion. Shares of RiskMetrics traded 13.2% higher at $21.09.

In other news, Federal Reserve Vice Chairman Donald Kohn said he will retire at the end of his term in June.

The U.K.'s largest bank, HSBC ( HBC), reported a 2% rise in fiscal-year net earnings but missed Wall Street estimates. The stock lost 6.1%.

Even though Dish Network ( DISH) added new subscribers, fourth-quarter earnings fell 18% year over year. The stock advanced 7.7%.

PepsiCo ( PEP) reaffirmed its 2010 earnings guidance as it completed a nearly $8 billion acquisition of Pepsi Bottling and PepsiAmericas.

Shares of Bank of America ( BAC), Ford Motor ( F) and Citigroup ( C) were the most heavily traded on the New York Stock Exchange, which had a listed volume of 3.8 billion. Volume on the Dow was 173.4 million, compared with an average of 200.4 million.

The dollar was trading higher against a basket of currencies, with the dollar index up by 0.4%.

In commodities markets, crude oil for April delivery fell 96 cents to settle at $78.70 a barrel, and the April gold contract lost 60 cents to settle at $1,118.30 an ounce.

The benchmark 10-year Treasury strengthened 3/32, diluting the yield to 3.608%.

Overseas, Hong Kong's Hang Seng rose 2.2% and Japan's Nikkei gained 0.5%. The FTSE in London added 0.9% and the DAX in Frankfurt advanced 1.9%.

-- Written by Melinda Peer and Sung Moss in New York.

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