updated 1/11/2005 8:17:13 AM ET 2005-01-11T13:17:13

Investors, burdened by angst about upcoming earnings reporting season, shrugged off a spate of mergers and acquisitions news Monday, leaving stock indices with only modest gains.

Major Market Indices

A flurry of merger activity — a buyout of video rental chain Hollywood Entertainment Corp., reported merger talks between Wells Fargo & Co. and British financial giant Barclays PLC and a deal in the wireless telephone sector — was seen as a sign that the economy would remain strong enough to support such deals.

That helped take the edge off of oil prices, which topped $47 per barrel for the first time since Dec. 1 before falling substantially in late trading. A barrel of light crude settled at $45.33, down 10 cents on the New York Mercantile Exchange.

But while the markets rose in somewhat uncertain trading, analysts said earnings reports were foremost on investors’ minds — especially corporate profit outlooks for 2005, which could include how companies feel about the prospects for inflation.

“We’re doing all right for now, but earnings will really determine where we’re going to go,” said Peter Cardillo, chief strategist and senior vice president at S.W. Bach & Co. “And the key with earnings will be guidance for 2005. How concerned is corporate America about inflation? That’s the big question.”

The Dow Jones industrial average was up 17.07 points, or 0.2 percent, at the close of trading, while the broader Standard & Poor’s 500-stock index was up 4.06 points, or 0.3 percent. The Nasdaq composite index gained 8.43 points, or 0.4 percent.

A Commerce Department report showed that wholesale inventories rose by 1.1 percent in November. Economists expected inventories to rise just 0.7 percent, slightly less than the 1.1 percent climb in October. But the report didn’t affect stock trading; analysts saw the rising inventories as companies hedging against economic uncertainty, particularly rising wholesale prices and possible inflation.

Inflation likely will continue to be a critical concern on Wall Street through earnings season, as companies discuss their forecasts for 2005. If companies are concerned that interest rates will rise quickly in response to a falling dollar and mounting inflationary pressures, then stocks could fall, putting a definitive end to the markets’ post-election rally that sagged last week.

“Right now, you’re just seeing people get back in because the prices fell so much last week,” said Bill Groenveld, head trader for vFinance Investments. “I mean, how low are you going to let prices go before you see a deal and get back in? Now it’s a question of whether the economic numbers and the earnings will keep us there.”

In corporate news, Hollywood Entertainment agreed to an $850 million buyout by Movie Gallery Inc., whose offer topped that of Blockbuster Inc. by 15 percent. Movie Gallery is poised to become the second-largest video chain in the United States, behind Blockbuster. Hollywood Entertainment gained 81 cents to $13.86 and Movie Gallery added 94 cents to $20.02, while Blockbuster was down 17 cents at $9.12.

According to media reports, Wells Fargo & Co. is in talks to acquire Barclays PLC, a deal reportedly worth more than $100 million. Barclays, considered a prime takeover target, climbed 77 cents to $45.42, while Wells Fargo slipped 4 to $62.13.

Shares of Western Wireless Corp. rose 85 cents to $37.37 after it agreed to a $4.4 billion cash-and-stock buyout by Alltel Corp., which would create the fifth-largest cell phone carrier in the United States. Alltel tumbled $1.37 to $54.75.

Nokia Corp. was upgraded to “outperform” from “neutral” by Credit Suisse First Boston, which said the cell phone maker should be able to regain market share this year and next. Nokia was up 24 cents at $15.49.

Caterpillar Inc. lost 86 cents at $92.52 after employees represented by the United Auto Workers agreed to a six-year contract, ending a nine-month dispute with 9,000 workers at factories in four states.

Alcoa Inc. dropped 22 cents at $30.47 in regular trading hours ahead of the release of its earnings report, which came out after the close of trading. Alcoa earned 39 cents per share before charges, compared with a Thomson First Call analyst estimate of 41 cents per share. Alcoa was unchanged in after-hours electronic trading.

Overseas, markets in Japan were closed for a national holiday. In Europe, Britain’s FTSE 100 closed down 0.28 percent, France’s CAC-40 was flat for the session, and Germany’s DAX index fell 0.21 percent.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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