Stocks Jump on M&A Activity, Earnings News

NEW YORK ( TheStreet) -- Stocks finished solidly higher Monday as a spate of fresh M&A activity and strong earnings from Caterpillar ( CAT) emboldened the bulls.

The Dow Jones Industrial Average added 105 points, or 0.9%, to close at 11,914 after gaining more than 130 points earlier in the session. The S&P 500 rose by 16 points, or 1.3%, to close at 1254, and the Nasdaq pushed into positive territory for the year, advancing by 62 points, or 2.4%, to finish at 2699.

Caterpillar shares jumped 5%, tops among the blue chips, after it reported earnings that soared 44% from a year earlier and booked record revenue for the third quarter. While the company acknowledged an uncertain economic and political outlook, it said it does not expect a global recession. Earnings per share came in at $1.71, easily topping Thomson Reuters's forecast of $1.54 a share.

Materials, tech and bank stocks showed the strongest performance within the Dow with Bank of America ( BAC), Alcoa ( AA), American Express ( AXP), JPMorgan Chase ( JPM) and Hewlett-Packard ( HPQ) among the biggest percentage gainers.

Consumer staples and telecoms were the session's weakest sectors with Procter & Gamble ( PG), Verizon ( VZ) and AT&T ( T) serving as the Dow's biggest laggards.

Shares of Netflix ( NFLX) were losing 26.4% to $87.50 in after-hours trading despite reporting better-than-expected quarterly earnings of $1.16 a share on revenue of $822 million. Netflix said it lost 810,000 subscribers from the second quarter to the third quarter.

Texas Instruments ( TXN) also reported earnings after Monday's closing bell. The company topped Wall Street's profit estimates by 3 cents with third-quarter earnings of 60 cents a share. The stock was off by 0.9% at $31.40 in late trading.

Investors welcomed a number of merger announcements on Monday, including health care management company Cigna ( CI), which agreed to buy Nashville-based HealthSpring ( HS) for $3.8 billion, or $55 a share in cash. HealthSpring shares surged 33.7% to $53.71.

Google ( GOOG) is also reportedly considering a bid for troubled Internet search pioneer Yahoo! ( YHOO), Yahoo! shares added 3.7% to $16.71 and Google shares rose 1% to $596.42.

Other deals included Oracle's ( ORCL) buyout of RightNow Technologies ( RNOW) for $1.43 billion. Shares of the software giant rose 2.3% and cloud services provider RightNow jumped 19.4% on the Nasdaq.

"Merger news always helps the tone of the market and lends credence to the value in the market," noted Quincy Krosby, market strategist at Prudential Financial. "Despite worries about a global downturn, companies are willing to go ahead with deals."

Gains across technology helped the Nasdaq outpace other indices. Cyclical names tend to fare well in the fourth quarter, said Krosby at Prudential Financial. "Consumer electronic names like Apple ( AAPL) should be strong getting into this season."

Market breadth was overwhelmingly positive with 81% of the 4.3 billion shares that traded on the New York Stock Exchange gaining ground while 17% declined. Some 2 billion stocks changed hands on the Nasdaq.

Meanwhile, European leaders continued to try to hammer out a comprehensive plan to stem the region's debt crisis, which they hope to finalize at a summit on Wednesday. So far, banks will likely have to raise about 100 billion euros, or $140 billion to bolster their capital and take a 40% to 60% write down on Greek debt. Progress on increasing the firepower of the rescue fund remains vague as leaders meeting over the weekend ruled out using the European Central Bank to expand the fund.

Skepticism remains over whether Germany and France can overcome their disagreements about who should bear the burden of helping more troubled nations. "There's no guarantee that this latest plan will work but at least the leaders being realistic," said Jim Maguire, floor trader with NativeOne Institutional Trading. "Since the market has been anticipating where things are going on Europe, it could flat line or sell off a little bit if a plan comes out on Wednesday."

The Dow has gained 10% over the past four weeks, helped by optimism over Europe and bright spots in U.S. earnings. Some 191 companies of the S&P 500 are expected to report quarterly results this week.

London's FTSE gained 1.1% while Germany's DAX finished up 1.4% despite a reading on German manufacturing falling to its lowest level since July 2009 . Asian markets rose, encouraged by data showing expansion in China's manufacturing sector. Japan's Nikkei Average finished 1.9% higher, and Hong Kong's Hang Seng jumped 4.14%.

The dollar index, a measure of the dollar's value against a basket of currencies, gained 0.38%. The euro extended a four day win streak, up 0.2% against the greenback. The benchmark 10-year Treasury was down 4/32, lifting the yield to 2.234%.

Commodities were helped by Chinese manufacturing numbers. Copper futures for December added 23 cents, or 7% to settle at $3.45 an ounce. Gold for December delivery gained $16.20, or 0.9% to settle at $1,652.30 an ounce. In other commodities, the December crude oil contract jumped $3.87, or 4.4%, to close at $91.27 a barrel.

-- Written by Chao Deng and Melinda Peer in New York.
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.