Stocks surged Tuesday, with the Dow Jones industrial average rallying 102 points, as a report that two companies are trying to buy Alcoa Inc. stoked investors’ hopes that takeover activity is on the rise.
Australia-based mining companies BHP Billiton Ltd. and Rio Tinto PLC are each considering offering to acquire the aluminum producer for $40 billion, according to the Times of London. The report came amid Hindalco Industries Ltd.’s $3.6 billion offer to buy Canadian aluminum maker Novelis Inc., and drugstore operator CVS Corp. bumping up the value of its proposed buy of Caremark Rx Inc.
The flurry of takeover-related news suggested that the global economy has some muscle. Investors were also encouraged by a spike in oil prices; an upgrade of General Motors Corp.; a stock buyback from 3M; and strong earnings reports from Marsh & McLennan Cos. and Nasdaq Stock Market Inc.
Analysts warned, though, that Tuesday’s climb followed three straight days of drops in the Dow Jones industrials, and that recent earnings reports have been mixed. Furthermore, Federal Reserve Chairman Ben Bernanke could hint in his testimony to Congress Wednesday that policy makers might need to raise interest rates — a move that could hurt consumer spending.
“The optimists are lifting their heads today despite all the pessimism in the market right now,” said Philip S. Dow, managing director of equity strategy at RBC Dain Rauscher in Minneapolis. “They’re making the bet that his comments will be benign, rather than scary and hawkish.”
The Dow Jones industrial average closed the day up 102.30 points, or 0.81 percent, while the broader Standard & Poor’s 500-stock index added 10.89 points, or 0.76 percent, and the Nasdaq composite index climbed 9.50 points, or 0.39 percent.
Bonds were little changed, despite the Commerce Department report showing that the trade deficit grew more than expected in December to $61.2 billion, pushing the gap to its fifth consecutive annual record in 2006.
Oil prices rose above $59 a barrel on Tuesday after the International Energy Agency predicted a sharp rise in global demand in 2007.
The climb in energy prices led traders to buy oil company stocks. Exxon Mobil Corp. rose 85 cents to $75.45; Chevron Corp. rose 51 cents to $72.83; and ConocoPhillips rose $1.24 to $67.27.
Meanwhile, the metals and mining sector was boosted by the report on Alcoa. Alcoa rose $2.10, or 6.4 percent, to $35, while rival Alcan Inc. rose $2.56, or 4.9 percent, to $54.75.
In other signs that merger-and-acquisition activity is quickening, restaurant chain Applebee’s International Inc. said it is looking into a possible sale of the company, while CVS boosted the value of its proposed acquisition of Caremark.
Applebee’s rose $2.09, or 8.6 percent, to $26.32. Caremark, which is also being pursued by Express Scripts Inc., rose $1.97, or 3.2 percent, to $62.88.
Most major earnings reports on Tuesday came in strong. But Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., pointed out that overall, quarter-on-quarter corporate financial results have been cooling off from last year’s high double-digit growth — notably in the banking and oil industries, which were big drivers in previous quarters.
This moderation, along with the potential for Bernanke’s comments to rock the markets on Wednesday, led some market watchers to interpret Tuesday’s jump conservatively.
The report on Alcoa “has given the market some short-term fervor, but I don’t think it’s sustainable,” Battipaglia said. “Today’s action is very nice, but it’s a very narrow set of circumstances.”
Despite the recent volatility in stocks, most analysts say the market is still in an overall uptrend.
“The fundamental picture is better than it looked in mid-December. There’s a bit of a slowdown in the economy, but above-average earnings,” said RBC Dain Rauscher’s Dow.
Nasdaq Stock Market Inc., the world’s largest electronic equities exchange, said its fourth-quarter profit tripled, thanks partly to robust trading volumes. Its shares fell $4, or 11.4 percent, to $31.10, though, on the collapse Monday of its bid for the London Stock Exchange.
Marsh & McLennan Companies Inc., the nation’s largest insurance brokerage, reported that profit in the latest quarter grew six-fold on strong revenue growth in its insurance, risk and consulting businesses.
KB Home said it swung to a loss in the latest quarter, but the homebuilder’s results were better than analysts expected. KB Home rose $1.49, or 2.8 percent, to $53.43.
The auto sector was lifted by a Merrill Lynch analyst report that upgraded GM but downgraded Ford Motor Co. GM rose 88 cents to $36.59 and Ford fell 20 cents, or 2.3 percent, to $8.45.
3M, the maker of Post-it Notes and Scotch tape, rose $1.84, or 2.5 percent, to $76.43 after authorizing a new $7 billion two-year share repurchase program.
Overseas, Japan’s Nikkei stock average rose 0.67 percent, hitting its highest level in more than six years. Britain’s FTSE 100 gained 0.32 percent, Germany’s DAX index rose 0.52 percent and France’s CAC-40 increased 0.69 percent.