updated 12/5/2006 8:28:21 AM ET 2006-12-05T13:28:21

Wall Street surged Monday, as investors put aside Pfizer Inc.’s decision to halt development of a key drug and focused instead on another series of takeover deals.

Major Market Indices

Pfizer shares fell by about 12 percent after the company stopped the development of the cholesterol drug torcetrapib because of deaths and cardiovascular problems among people taking the drug during clinical trials. The stock was also downgraded by several Wall Street analysts on concern that Pfizer’s revenue growth will now weaken.

The news was offset by several merger announcements that reinforced the belief that companies are optimistic about the economy and therefore are willing to take some risks. Leading them was Bank of New York Corp.’s $16.5 billion deal to buy rival Mellon Financial Corp. to create an asset management powerhouse.

“Trading activity is being driven by the large amount of merger and acquisition announcements, specifically in the banking, semiconductor and hotel sectors of the market,” Michael Sheldon, chief market strategist at Spencer Clarke LLC. “Many investors remain concerned about the economy, but are optimistic that a soft land lies ahead for U.S. financial markets.”

He said Friday’s report on November employment from the Labor Department will add “fuel to the fire” if it’s weaker than expected, or provide relief after a string of sluggish economic reports. On Tuesday, the Commerce Department issues data on factory orders for October and the Institute for Supply Management releases its services sector business index.

The Dow Jones industrial average finished the session up 89.72 points, or 0.74 percent, while the broader Standard & Poor’s 500-stock index closed up 12.41 points, or 0.89 percent. The Nasdaq composite index jumped 35.18 points, or 1.46 percent.

Stocks had stumbled Friday after a manufacturing survey unexpectedly contracted in November, pushing the major indexes to a loss for the week. However, major indexes are still poised to finish 2006 with double-digit gains. The Dow so far this year is up 14.61 percent, the S&P 500 has gained 12.88 percent, and the Nasdaq 11.02 percent.

“We really need somewhat of a pullback to keep us from using up all this fuel,” said Al Goldman, chief market strategist with A.G. Edwards & Sons. “But, overall, I’m still optimistic with a level of caution after the party we’ve already had.”

Bonds were little changed, with the yield on the benchmark 10-year Treasury note flat at 4.43 percent from late Friday. The dollar was mixed against other major currencies, while gold prices rose.

Oil prices reversed some of their increases last week , but was seen moving higher amid worries about possible production cuts by OPEC. A barrel of light, sweet crude fell 99 cents to $62.44 on the New York Mercantile Exchange.

Drug makers were in focus after Pfizer pulled its cholesterol drug because it causes possibly deadly side effects. Shares of the Dow component fell $2.96, or 10.6 percent, to $24.90.

However, rivals Merck & Co. and Schering-Plough Corp. were mixed although their cholesterol drug was seen thriving with competition eliminated. The two companies partner to make Zeita and Vytorin. Merck fell 36 cents to $44.70, while Schering-Plough added 80 cents, or 3.7 percent, to $22.73.

Bank of New York’s all-stock deal to buy Mellon will create the world’s leading asset servicer with $16.6 trillion in assets under custody. It also ranks among the top 10 global money managers with more than $1.1 trillion in assets under management.

Shares of Bank of New York leaped $4.27, or 12 percent, to $39.75. Mellon rose $2.73, or 6.8 percent, to $42.78.

LSI Logic Corp. said it will buy rival chip and storage systems maker Agere Systems Inc. for $4 billion in stock. The purchase price represents a 28 percent premium for Agere shareholders. LSI fell $1.44, or 13.6 percent, to $9.12; Agere Systems rose $1.51, or 8.5 percent, to $19.30.

Financier Kirk Kerkorian’s investment arm, Tracinda Corp., on Monday launched a cash tender offer to acquire 15 million shares of casino operator MGM Mirage. Tracinda currently holds a 55.9 percent stake in the Las Vegas-based company, whose shares rose $2.68, or 5 percent, to $56.35.

Overseas, Japan’s Nikkei stock average closed lower by 0.11 percent. Britain’s FTSE 100 closed up 0.48 percent, Germany’s DAX index rose 0.87 percent and France’s CAC-40 added 0.80 percent.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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