NEW YORK (CNN/Money) -
The S&P 500 hit new highs for the year Monday on a wave of buying sparked by the day's merger news, including Oracle's $10.3 billion buy of rival PeopleSoft.
Tuesday's big event for the markets is an expected rate hike from the Federal Reserve. The central bank is meeting during the day to discuss monetary policy and a decision is due around 2:15 p.m. ET.
The Dow Jones industrial average (up 95.10 to 10,638.32, Charts) added around 0.9 percent, closing at its highest level in more than 9 months.
The broader Standard & Poor's 500 (up 10.68 to 1,198.68, Charts) index also added 0.9 percent and ended at a fresh 3-1/2 year high, a feat it's managed several times in the last month.
The Nasdaq composite (up 20.43 to 2,148.50, Charts) gained around 0.9 percent, closing near its highs for the year.
In a day heavy on merger developments, the highlight was news that Oracle has finally struck a deal to buy PeopleSoft, ending an 18-month hostile takeover battle. The deal is valued at $10.3 billion, or $26.50 a PeopleSoft share.
Separately, Oracle reported improved fiscal second-quarter earnings that topped estimates.
The spate of deals seemed to revive the six-week rally, which had stumbled last week.
Also supporting gains: retail sales, which rose modestly in November, according to a government report released before the start of trading. The results topped Wall Street forecasts and seemed to suggest a stronger start to the all-important holiday shopping period than many analysts had cited.
"I think the M&A activity is certainly the headline, with Oracle-PeopleSoft and a hangover of Sprint-Nextel," said Hugh Johnson, chief investment officer at First Albany. "As the acquisitions start to pick up, that's new money coming into the market, which is positive," he added.
On Tuesday, the Federal Reserve is largely expected to decide to boost the Fed funds rate, an overnight bank lending rate, by a quarter percentage point to 2.25 percent. (For a preview of the Fed decision, click here.)
"A 25-basis point rise is built into the markets," Johnson added. "What's not built in, and there's a chance this could happen, is that they might shift the balance of risks to favor inflation, which would mean that rates will rise more aggressively next year."
After the close, Dow component Boeing (Research) said it was boosting its quarterly dividend to 25 cents per share from 20 cents per share, effective March 4 of next year.
What moved?
Shares of Oracle (up $1.35 to $14.63, Research) and PeopleSoft (up $2.47 to $26.42, Research) both popped more than 10 percent.
A number of software makers moved on the news. The Goldman Sachs Software (Charts) index rose 3.10 percent.
Honeywell (up $1.14 to $36.45, Research) rose 3.2 percent, giving support to the Dow, on news that it bid for Novar, a British industrial holding company, for about $1.5 billion.
Other deal news concerned: Toys R Us (Research), which is looking to sell its toy operations, Johnson & Johnson (Research) and Guidant (Research), still in discussions regarding a proposed $24 billion merger and the ongoing Sprint (Research) purchase of Nextel (Research).
Among other stock movers, Motorola (up $0.85 to $17.15, Research) gained 5.2 percent after saying it will realign its businesses into four groups, starting January 1, and that the changes will not require any job cuts.
Oil prices inched higher, having spent the morning and early afternoon see-sawing on both sides of unchanged.
U.S. light crude oil for January rose 30 cents to settle at $41.01 a barrel on the New York Mercantile Exchange.
Market breadth was positive. On the New York Stock Exchange, advancers beat decliners by two to one on volume of 1.43 billion shares. On the Nasdaq, winners beat losers by three to two on volume of 2.09 billion shares.
The major indexes rose for six weeks straight before pulling back last week. Investors are hoping that this wasn't the last big rally of the year, and that late December lives up to its reputation as being seasonally strong for stocks.
"I think we're still going to get a bit of a Santa Claus rally," said Tom Schrader, managing director of U.S. equity trading at Legg Mason. "But I'm not sure how substantial it's going to be."
Treasury prices were barely changed Monday, with the 10-year note yield at 4.15 percent, unchanged from late Friday. Bond prices and yields move in opposite directions.
In currency markets, the dollar fell versus the yen and euro, retreating after a three-day rally.
COMEX gold rallied $5 to settle at $440.30 an ounce, rising with other dollar-traded commodities.
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