NEW YORK (CNN/Money) - Hopes for a diplomatic solution in Iraq had traders' shoulders easing Monday morning. But the question, again, was for how long.

U.N. weapons inspectors emerged from two days of talks in Baghdad, saying that high-level Iraqi officials are offering increased cooperation. President Bush responded that increased cooperation isn't good enough and that the inspectors must see proof that weapons of mass destruction have been destroyed.

Still, investors appeared hopeful that diplomacy still had a chance. France, Russia and Germany are backing a plan to increase the number of inspectors and introduce a U.N. peace-keeping force. Trying to put on the screws, France vetoed NATO planning for the protection of Turkey in the even of war with Iraq.

Stock index futures were higher heading into the open.

"That's just a reaction to four down weeks," said Kirlin Securities chief market strategist Tony Dwyer, who worries over the growing fault lines at NATO and the United Nations. "You've got more factors to worry about now. Even if there's a war and it goes well, now you have far-reaching implications."

Chief arms inspector Hans Blix has said that more inspectors is not what is needed so much as more cooperation from Iraq. He and Mohamed ElBaradei, head of the U.N. nuclear watchdog agency, are due to report to the U.N. Security Council on Friday.

Giving traders some cheer, Bank of America Securities strategist Tom McManus today raised his recommended stock allocation to 75 percent from 70 percent, lowering his bond allocation to 15 percent from 20 percent (the remaining 10 percent is in cash.)

Unlike virtually all of the other bullish strategists on Wall Street today, McManus has actually been a bear at times over the past three years. As a result, he garners some respect in the market.

Stocks have fallen for the past month amid fears of a military showdown with Iraq. The Dow Jones industrial average is down 5.7 percent for the year and 11 percent -- nearly 1,000 points -- below its high of the new year. The Nasdaq composite index is 4 percent lower so far in 2003.

Even a stronger-than-expected employment report couldn't salvage the market's Friday session. The Dow closed the day at 7,864.23 after dropping 0.8 percent, while the Nasdaq finished at 1,282.47 following a 1.5 percent loss.

In corporate news, CNN founder Ted Turner sold $20 million in AOL Time Warner (AOL: Research, Estimates) stock earlier this month, just a few days after his resignation as the media company's vice chairman, according to a filing with the Securities and Exchange Commission. AOL Time Warner is the parent of CNN/Money.

Brokerages Prudential (PRU: Research, Estimates) and Wachovia (WB: Research, Estimates) may be close to merging their brokerage and research units, according to a New York Times report.

SBC Communications (SBC: Research, Estimates) is in talks to buy satellite television operator Hughes Electronics (GMH: Research, Estimates) in a deal that could be worth up to $10 billion. The Financial Times speculates that the talk could put SBC shares under pressure. Shares of the stock gained 27 cents to $25.18 Friday.

In addition, hotel chain Marriott International (MAR: Research, Estimates) reported quarterly earnings of 55 cents per share, a penny better than expected and up from the 22 cents it earned a year earlier. However, the company also said first-quarter and 2003 earnings will miss estimates.

Asian-Pacific stocks ended mixed Monday, with Tokyo's Nikkei index up 0.5 percent. Trading was light in Tokyo, with many traders sticking to the sidelines ahead of a national holiday Tuesday.

After trading lower earlier in the day, European markets had risen to trade near their flatlines in the early afternoon there.

Treasury prices gained in early trading, sending the 10-year note yield up to 3.93 percent.

The dollar edged higher against the yen and euro. The British pound was firmer against all the major currencies after the Sunday Times reported that Chancellor of the Exchequer Gordon Brown has decided against adopting the euro. Brown denied this, saying that the decision rests on the results of financial tests to be completed in June.

Brent oil futures gained 11 cents to $32.10 a barrel in London. Gold rose above $370 an ounce.