Wall Street gains as merger activity boosts mood

Traders work on the floor of the New York Stock Exchange, August 3, 2009.

NEW YORK (Reuters) - Stocks rose on Monday as reports of more merger activity added to a string of recent deals, suggesting investors still see value in the market after its run-up of more than 50 percent since March.

Optimism about potential deals overshadowed concerns about trade friction between the United States and China after Washington imposed special duties on Chinese tire imports.

Shares of power company AES Corp (AES.N) rose 4.5 percent after a Wall Street Journal report that China's sovereign wealth fund was in talks to take a stake in AES.

Sprint Nextel Corp (S.N) jumped 10.1 percent after a British newspaper reported Germany's Deutsche Telekom AG (DTEGn.DE) was considering a bid for its U.S. rival.

"The M&A activity is definitely starting to heat up. (The AES news) sparked interest across the whole utility sector," said Owen Fitzpatrick, head of U.S. Equity Group at Deutsche Bank Private Wealth Management, in New York.

Analysts say M&A activity could help the market stay on its recent uptrend. The benchmark Standard & Poor's 500 index has gained 55 percent since hitting 12-year lows in early March.

U.S. President Barack Obama, speaking in New York one year after Lehman Brothers' collapse sent world markets into a tailspin, called on financial firms not to fight regulatory reform, but there was little market reaction.

The Dow Jones industrial average .DJI ended up 21.39 points, or 0.22 percent, at 9,626.80. The Standard & Poor's 500 Index .SPX was up 6.61 points, or 0.63 percent, at 1,049.34. The Nasdaq Composite Index .IXIC finished 10.88 points higher, or 0.52 percent, at 2,091.78.

Banks, which benefit from M&A activity, were among top gainers as well, with shares of JPMorgan Chase & Co (JPM.N) up 2.9 percent at $43.75 and leading gains on the Dow.

In other merger news, Cadbury Plc CBRY.L reiterated its stance on a takeover bid from Kraft Foods Inc (KFT.N) over the weekend as Cadbury's chairman, Roger Carr, said it was an "unappealing prospect" being absorbed into Kraft's low-growth, conglomerate business model.

Kraft, which went public last week with a bid for the British confectioner, rose 0.04 percent to $26.11.

Shares of U.S. tire makers also rose, including Goodyear Tire & Rubber Co (GT.N) up 3 percent to $17.78 and Cooper Tire & Rubber Co (CTB.N) up 7.1 percent to $15.60.

But analysts said the trade decision by Obama could open the door to a host of trade complaints against Chinese products, creating tensions as Western nations seek support from the world's third-largest economy at G20 meetings later this month.

China's commerce ministry said Sunday it launched an anti-dumping investigation into imports of U.S. chicken products and automotive exporters.

"Although on the surface it could lead to something serious, I think both sides, and certainly China, realize that it not in their best interest to really escalate this," said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston.

Shares of AES ended at $14.79 while shares of Sprint closed at $4.15.

On the Nasdaq, shares of Dendreon Corp (DNDN.O) rose 15.1 percent to $27.43 after analysts said there was renewed speculation the company, which is developing a vaccine for prostate cancer, is a takeover target.

Other acquisitions or bids were announced last week in the communications and biotech sectors.

Volume was below average on the New York Stock Exchange, with 1.21 billion shares changing hands, below last year's estimated daily average of 1.49 billion, while on the Nasdaq, about 2.17 billion shares traded, down from last year's daily average of 2.28 billion.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of 2 to 1, while advancers beat decliners on the Nasdaq by about 8 to 5.

(Additional reporting by Edward Krudy; Editing by Kenneth Barry)