updated 7/25/2006 7:54:02 AM ET 2006-07-25T11:54:02

Wall Street rallied on a burst of optimism Monday, driving the Dow Jones industrial average up 183 points and above the psychologically-key 11,000 level, as some multibillion-dollar buyouts and good earnings tempered fears of an economic slowdown.

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Acquisitions led the day’s headlines, with three equity firms agreeing to take hospital operator HCA private for $21.3 billion of cash and the assumption of $11.7 billion in debt, marking the largest-ever leveraged buyout. Also, Advanced Micro Devices Inc. acquired ATI Technologies Inc. for $5.4 billion .

“The fact that merger and acquisition activity is strong in the United States and abroad is a good indication that while the economy is expected to slow, perhaps the worry of a hard landing is overstated,” said Peter Cardillo, chief strategist at S.W. Bach & Co. He added that lower gold prices and gains for the dollar also boosted stocks.

Monday’s acquisition news relieved investors concerned about a weakening economy. Corporate buyouts typically signal optimism over economic growth; a profit warning from Dell Inc. late last week dimmed the near-term outlook and dragged the Nasdaq composite index to a 14-month low.

Solid earnings from drugmakers contributed momentum. Dow Jones industrial Merck & Co. said its second-quarter earnings more than doubled to top Wall Street estimates, while Schering-Plough Corp. swung to a profit and also beat expectations.

The Dow Jones industrial average finished the day up 182.67 points, or 1.68 percent, while the broader Standard & Poor’s 500-stock index rallied 20.62 points, or 1.66 percent. The Nasdaq composite index saw its best day in three weeks, jumping 41.45 points, or 2.05 percent.

Big index moves and wide advance-decline margins have become more frequent as of late, as jitters about interest rates, inflation and a slowing economy caused fluctuations in investor sentiment. The volatility shows “there’s not a great deal of certainty or conviction on one side of the trade,” said Art Hogan, chief market analyst for Jefferies & Co.

A disappointing round of earnings fed uneasiness about the economy’s strength and punished stocks two weeks ago, while increased hopes for an end to the Fed’s rate tightening gave the Dow solid gains last week. Aside from more earnings, critical data this week on consumer confidence and second-quarter gross domestic product growth could drive stocks in either direction Hogan said.

Bonds wobbled, with the yield on the 10-year Treasury note edging up to 5.05 percent from 5.04 percent late Friday. The U.S. dollar advanced on the Japanese yen; gold prices dropped to about $615 an ounce.

Oil futures rebounded from earlier losses as energy traders awaited developments in talks over the Middle East conflict. A barrel of light crude rose 62 cents to settle at $75.05 on the New York Mercantile Exchange.

HCA accepted a $51-per-share bid from Bain Capital, Kohlberg Kravis Roberts & Co. and Merrill Lynch Global Private Equity, but said it would consider better proposals during the next 50 days. HCA rose $1.61 to $49.48.

AMD’s purchase of ATI, involving $4.2 billion of cash and 57 million AMD shares, helps the computer processor company step up its competition with industry leader Intel Corp. AMD fell 87 cents to $17.39; ATI surged $3.11 to $19.67.

Robust earnings lifted the drugmakers’ stocks, with Merck rising $1.59 to $38.95 and Schering-Plough adding $1.10 to $20.55.

The airline sector advanced after United Airlines parent UAL Corp. said its quarterly profit — its first since 2000 — is forecast to top estimates , helped by higher fares and occupancy. UAL jumped $1.25 to $28.20; the American Stock Exchange Airline index gained 1.37 to 50.93.

BellSouth Corp. also saw its earnings climb more than 11 percent on improved sales, besting analysts’ predictions. BellSouth gained 80 cents to $36.20.

Overseas, Japan’s Nikkei stock average slid 0.18 percent. Wall Street’s gains boosted European markets, with Britain’s FTSE 100 surging 2 percent, Germany’s DAX index up 2.33 percent and France’s CAC-40 higher by 2 percent.

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