S&P hits two-week high on strong earnings; M&A supports

NEW YORK - (Reuters) - The S&P 500 hit a two-week high on Monday on the back of strong earnings, while a flurry of acquisitions indicated corporate America continues to see untapped value in the market.

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Annualized third-quarter earnings from S&P 500 components are expected to have risen 1.1 percent last quarter, following four quarters of contraction, according to Thomson Reuters I/B/E/S data. Of the 120 companies that have reported so far, 78 percent have beaten analyst expectations, above the long-term average of 63.5 percent.

Microsoft, which handily beat expectations last week, rose 2.2 percent and Apple, due to report on Tuesday, rose 0.9 percent.

“Consensus is earnings are going to continue to improve in part due to favorable energy prices and to strong consumption patterns here in the U.S.,” said Chad Morganlander, portfolio manager at Stifel Nicolaus in Florham Park, New Jersey.

Wall Street signaled skepticism that AT&T T.N would be allowed by regulators to purchase Time Warner Inc TWX.N for a planned $85.4 billion.

Shares of both companies fell as analysts scrutinized the deal, with AT&T T.N down 1.7 percent at $36.86 and Time Warner Inc TWX.N down 3.1 percent at $86.74.

But competitor T-Mobile US TMUS.O jumped to its highest since August 2007 after it raised its forecast for customer additions for the year and said the AT&T-Time Warner deal could help T-Mobile carve out more market share.

T-Mobile shares ended up 9.5 percent at $51.19.

The Dow Jones industrial average .DJI rose 77.32 points, or 0.43 percent, to 18,223.03, the S&P 500 .SPX gained 10.17 points, or 0.47 percent, to 2,151.33 and the Nasdaq Composite .IXIC added 52.43 points, or 1 percent, to 5,309.83.

TD Ameritrade AMTD.O fell 4.4 percent to $35.46 after it said it would buy privately held Scottrade Financial Services [SCTRD.UL] in a deal valued at $4 billion.

B/E Aerospace BEAV.O jumped 16.4 percent to $58.89 after aircraft component maker Rockwell Collins COL.N said it would buy the company in a deal valued at $6.4 billion plus the assumption of $1.9 billion in debt. Rockwell was down 6.2 percent at $79.21.

“Overall merger and acquisition activity will continue, due in part to low debt financing costs,” said Stifel’s Morganlander.

The S&P 500 posted 18 new 52-week highs and 4 new lows; the Nasdaq Composite recorded 110 new highs and 45 new lows.

About 5.8 billion shares changed hands in U.S. exchanges, below the 6.4 billion daily average over the last 20 sessions.

Reporting by Rodrigo Campos; Editing by Nick Zieminski