Stocks advance as deal talk increases

NEW YORK - Wall Street advanced Monday following reports of potential corporate deals — including news that Washington Mutual Inc. might get a $5 billion investment from private equity firms.

Washington Mutual, the nation's largest thrift, is in talks with buyout shop TPG Inc. and other investors about selling a stake in itself in return for cash, according to The Wall Street Journal. The company, which has suffered big losses tied to subprime mortgages, would become the latest U.S. financial institution to reach such a deal.

Ahead of the first-quarter earnings season — which begins with aluminum company Alcoa Inc.'s results after the market closes Monday — the report was an auspicious sign. Investors are growing more optimistic that stocks and the companies that issue them may be starting to recover from a long slump due to tight credit and a sluggish economy.

"Overall, I'm getting the sense here that the Street is starting to focus on fundamentals and the timing of a potential recovery in the economy, and trying to move past the credit crisis," said Craig Peckham, market strategist at Jefferies & Co.

That's not to say the market volatility seen over the past several months is over. Peckham said Monday's calm, upbeat trading is a "rather predictable lull" ahead of earnings season, and that investors could grow anxious again if banks reveal bigger losses than expected and in more types of debt than anticipated.

In late morning trading, the Dow Jones industrial average rose 62.45, or 0.50 percent, to 12,671.87.

Broader stock indicators also advanced. The Standard & Poor's 500 index rose 8.74, or 0.64 percent, to 1,379.14, and the Nasdaq composite index rose 9.31, or 0.39 percent, to 2,380.29.

Washington Mutual shot up $2.31, or 22 percent, to $12.48.

In other dealmaking news Monday, Microsoft Corp. gave Yahoo Inc. a three-week deadline to agree to a takeover, or Microsoft plans to launch a proxy fight for control of the company.

Yahoo fell 62 cents, or 2.2 percent, to $27.74, while Microsoft rose 9 cents to $29.25. Yahoo said Monday the deal isn't in the best interests of its shareholders, and called Microsoft's proxy threat counterproductive.

Meanwhile, Swiss pharmaceutical maker Novartis AG said it will spend about $38 billion in a two-step bid for a majority stake in U.S. eye-care company Alcon Inc. Alcon rose $4.61, or 3.1 percent, to $153.06, and Novartis fell $1.67, or 3.2 percent, to $50.45.

Last week, stocks advanced as investors found relief in reports that Lehman Brothers Holdings Inc. and Switzerland's UBS AG are selling stock to raise cash and Merrill Lynch & Co. believes it has sufficient cash to continue operating. Despite a report Friday showing the third straight month of job losses in March, the Dow finished last week up 3.22 percent, the S&P 500 index rose 4.86 percent, and the Nasdaq rose 4.20 percent.

On Monday, government bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.53 percent from 3.47 percent late Wednesday.

Light, sweet crude rose $2.50 to $108.73 a barrel on the New York Mercantile Exchange. Gold prices increased, and the dollar gained against most other major currencies.

Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange, where volume came to 396.5 million shares.

The Russell 2000 index of smaller companies rose 4.07, or 0.57 percent, to 717.80.

Overseas, Japan's Nikkei stock average rose 1.18 percent. In afternoon trading, Britain's FTSE 100 added 0.92 percent, Germany's DAX index rose 0.84 percent, and France's CAC-40 rose 0.80 percent.

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