Wall Street ends up on M&A hopes, strong commodities

By Angela Moon

NEW YORK (Reuters) - U.S. stocks advanced on Tuesday on an uptick in corporate deal activity while the weak dollar led to gains in commodities, lifting shares of oil and mining companies.

Kraft Foods Inc (KFT.N), North America's biggest food company, said it was intent on pursuing Britain's Cadbury (CBRY.L) despite the confectionary company's rejection of a $16.7 billion Kraft bid made on Monday.

Although Kraft's stock fell nearly 6 percent, other food companies rose, including Hershey Co (HSY.N), which added 1.3 percent to $39.14.

"Ever since the market's big rally, a lot of folks have been concerned about valuations. But when you see a bid like this, it eases those fears," said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville, Tennessee.

The dollar fell to its lowest this year against the euro, pushing oil up 4.5 percent and gold temporarily above $1,000 an ounce.

Chevron (CVX.N) rose more than 2 percent to $70.48, leading the Dow higher, and Freeport-McMoRan Copper & Gold Inc (FCX.N) gained 3 percent to $68.00.

The Dow Jones industrial average .DJI closed up 56.07 points, or 0.59 percent, at 9,497.34. The Standard & Poor's 500 Index .SPX rose 8.98 points, or 0.88 percent, at 1,025.38. The Nasdaq Composite Index .IXIC gained 18.99 points, or 0.94 percent, at 2,037.77.

The S&P 500 index has posted a 52 percent rally from its multiyear low in March, and analysts still gave an upbeat outlook for the benchmark.

David Bianco, Bank of America Merrill Lynch's chief US equity strategist, said in research note on Tuesday that the index should hit 1,200 over the next 12 months because of strong earnings growth.

The firm also is raising its earnings per share estimates for 2009, 2010 and 2011, with increases in the financial sector helping to support growth.

Earlier in the day, market research firm Birinyi Associates also said that the benchmark index could close the year at 1,285. The last time S&P 500 was above 1,200 was September 2008.

The Kraft bid comes after France Telecom (FTE.PA) and Deutsche Telekom (DTEGn.DE) announced plans to merge their British mobile units.

Last week, Walt Disney Co's (DIS.N) said it will buy Marvel Entertainment Inc (MVL.N) for $4 billion, fueling hopes of a pick-up in merger activity.

The news of the rebuff sent Kraft shares down 5.9 percent to $26.45, but speculation about potential suitors for Cadbury buoyed the overall market sentiment.

Also in the oil sector, Exxon Mobil (XOM.N) gained 2.1 percent to $70.65.