Wall Street surges on merger news

Stocks spiked higher Monday as Wall Street joined overseas markets in riding a wave of merger news to bounce back from a losing week. The Dow Jones industrials rose 115 points.

The buyout news, particularly the possibility of an enormous deal that would unite Dutch bank ABN Amro Holding NV with British bank Barclays PLC, propelled stocks higher as investors theorized that companies remain upbeat about the economy if they’re willing to cut new deals.

The advance kicked off an important week for economic data; the first reading, a report from the Chicago Federal Reserve, said regional manufacturing slowed in January. The market was also waiting for today’s start of the U.S. Federal Reserve’s two-day meeting on interest rates. While few expect the Fed will adjust short-term interest rates, investors will be looking for any change in the central bank’s posture that could hint at where rates are headed in the coming months.

Given the volatility that has returned to the marketplace and the upcoming statement from the Fed, market watchers aren’t ruling out more big swings in stocks going forward.

“I think the markets are very sentiment driven. It does also appear that when the global markets see recovery in one area they all seem to move up and when they see concern in another market they all seem to move down,” said Subodh Kumar, global investment strategist at Subodh Kumar & Assoc. in Toronto.

The Dow rose 115.76, or 0.96 percent, to 12,226.17, its biggest one-day gain since March 6, when the index climbed more than 150 points.

Broader stock indicators also rose sharply. The Standard & Poor’s 500 index gained 15.11, or 1.09 percent, to 1,402.06, and the Nasdaq composite index advanced 21.75, or 0.92 percent, to 2,394.41.

Bonds fell as stocks made gains. The yield on the benchmark 10-year Treasury note rose to 4.57 percent from 4.55 percent late Friday. The dollar was mixed against other major currencies, rising to 117.59 yen from 116.73 yen late Friday. Gold prices rose.

The advance in U.S. equities came as stocks overseas rose sharply, even after China’s central banks raised interest rates to try to cool the economy.

Overseas, Japan’s Nikkei stock average rose 1.59 percent, Hong Kong’s Hang Seng index advanced 1.65 percent, and the sometimes volatile Shanghai Composite Index rose 2.87 percent. Britain’s FTSE 100 closed up 0.96 percent, Germany’s DAX index added 1.39 percent, and France’s CAC-40 finished up 1.43 percent.

“I would attribute what we’re seeing to relief that the Asian markets were stronger despite the Bank of China having raised interest rates,” Kumar said. “I don’t put a lot of faith in the idea that this rally is sustainable. I think we’re range-bound.”

Investors are trying to determine if the economy can pull off a so-called soft landing or whether areas of weakness such as the housing sector are poised to drag the economy into a pronounced slowdown.

Concerns about the economy and areas such as the subprime mortgage lending sector, which makes a business of making loans to people with poor credit, helped push stocks lower last week. The Dow industrials fell 1.35 percent, the S&P 500 gave up 1.13 percent, and the Nasdaq composite index slid 0.62 percent.

Advancing issues outnumbered decliners by more than 3 to 1 on the New York Stock Exchange, where consolidated volume came to 2.67 billion shares – down from 3.31 billion shares on Friday, when contract expirations elevated volumes.

The Russell 2000 index of smaller companies rose 8.28, or 1.06 percent, to 787.05.

Light, sweet crude fell 52 cents to $56.59 a barrel on the New York Mercantile Exchange amid concerns that demand could slump.