Wall Street rallies as investors mull data

/ Source: The Associated Press

Wall Street soared Monday in the first day of trading for the third quarter, boosted by a decline in Treasury yields, a rise in June manufacturing activity and a spate of buyout news.

The Dow Jones industrial average gained more than 120 points after the Institute for Supply Management’s June manufacturing index came in at 56.0, slightly higher than the market expected and indicating stronger expansion than May’s reading of 55.0. The report also showed a decrease in its prices paid index, suggesting inflation pressures lifted a bit last month and easing some of the market’s worries about the Federal Reserve’s interest rate policy.

As inflation concerns lessened, the 10-year Treasury note’s yield fell below 5 percent from 5.03 percent late Friday, dampened additionally by investors flocking to the safe-haven assets amid ongoing jitters about subprime lending. In mid-June, Bear Stearns & Cos. had to bail out a hedge fund with investments tied to subprime mortgages.

Investors were also enthusiastic about new takeover activity, involving such targets as Canadian telecommunications company BCE Inc., rural wireless provider Dobson Communications Corp. and British telecommunications company Virgin Media Inc.

“There’s favorable economic news and continuing merger talk. That’s a pretty good recipe for the market,” said Stuart Schweitzer, managing director and global markets strategist for JPMorgan Private Bank. He added, though, that the market has been seesawing in recent weeks and trading volumes are light, so the market’s gain should not be interpreted as a turnaround just yet.

“I think the movie’s going to end well this year, but there are still going to be some scenes where we’ll have to take our eyes away from the screen,” Schweitzer said, pointing to persistent sluggishness in the housing market and nervousness over credit problems.

According to preliminary calculations, the Dow rose 126.81, or 0.95 percent, to 13,535.43.

Broader stock indicators also rose. The Standard & Poor’s 500 index gained 16.08, or 1.07 percent, at 1,519.43, and the Nasdaq composite index jumped 29.07, or 1.12 percent, at 2,632.30.

The combination of retreating yields and reports of fresh buyout activity gave some relief to investors who were worried about business slowing down due to high rates.

“There’s a little positive to the subprime woes, that being that interest rates are dropping now,” said Steven Goldman, chief market strategist at Weeden & Co. in Greenwich, Conn. The 10-year Treasury note’s yield breached the 5 percent level in early June for the first time since last year, hit a peak of nearly 5.30 percent, and have since retreated. High rates can hamper deal making.

BCE rose $1.66, or 4.4 percent, to $39.45 after a $32.6 billion buyout offer over the weekend — the biggest Canadian takeover ever — from a consortium led by the Ontario Teachers Pension Plan Board.

The news followed Friday’s announcement that AT&T Inc. had agreed to buy Dobson for $2.8 billion. Dobson rose $1.31, or 11.8 percent, to $12.40 Monday, while AT&T rose 35 cents to $41.85.

On Monday, Virgin Media confirmed it received a buyout offer, following reports that private equity firm the Carlyle Group bid more than $11 billion for the company. Virgin Media soared $4.30, or 17.6 percent, to $28.67.

The Carlyle Group also made an offer Monday for nursing home chain Manor Care Inc., valued at $4.9 billion. Manor Care slipped $1.19 to $64.10.

Investors appeared unfazed Monday by high oil prices. Crude oil futures on the New York Mercantile Exchange initially fell Monday, but then rebounded to rise 41 cents to $71.09 a barrel — closing above $71 for the first time in 10 months.

The dollar fell against most other major currencies, while gold prices rose.

Advancing issues outnumbered decliners by about 4 to 1 on the New York Stock Exchange, where volume came to 1.38 billion shares.

Trading volumes are fairly low ahead of the Independence Day holiday on Wednesday, when U.S. stock exchanges will be closed. The markets are also closing early on Tuesday.

No major earnings reports are scheduled to be released this week, but investors will keep an eye out for profit warnings ahead of the second-quarter earnings season, which starts the third week of July.

The Russell 2000 index of smaller companies rose 11.36, or 1.36 percent, to 845.06.

Overseas, Japan’s Nikkei stock average rose 0.04 percent. Britain’s FTSE 100 fell 0.26 percent, Germany’s DAX index declined 0.61 percent, and France’s CAC-40 lost 0.46 percent.