2nd half starts with a bang on Wall Street

NEW YORK (CNNMoney.com) -- The second half of 2007 got off to a strong start on Wall Street on Monday as investors cheered buyout news, falling Treasury yields and a better-than-expected report on manufacturing activity.

The Dow Jones industrial average (up 126.81 to 13,535.43, Charts) jumped nearly 127 points, or almost 1 percent.

The broader Standard & Poor's 500 index (up 16.08 to 1,519.43, Charts)and the Nasdaq composite index (up 29.07 to 2,632.30, Charts) each climbed about 1.1 percent, with the tech-heavy Nasdaq hitting a fresh six-year high.

All three gauges notched gains for the second straight session Monday after a three-day losing streak. Trading was relatively light with many traders on vacation.

U.S. markets are set to close early Tuesday and are closed Wednesday for the July 4 holiday.

"Inflation is moderating and economic growth is reasonable - it's a pretty good environment for stocks," said Scott Wren, senior equity strategist at A.G. Edwards & Sons.

But "there will be a lot of volatility this week," he cautioned, with investors turning their attention to reports on factory orders and auto sales due out Tuesday in addition to the employment report, slated for later in the week.

In merger news, Canadian telecommunications operator BCE (up $1.66 to $39.45, Charts), the parent of Bell Canada, said over the weekend it agreed to be acquired for $32.6 billion by a group including Ontario Teachers' Pension Plan, Providence Equity Partners and Madison Dearborn Partners. An additional $15.9 billion in assumed debt makes it the largest private equity buyout in history.

Health care services provider Manor Care (down $1.19 to $64.10, Charts) said Monday it would be taken private by private equity firm Carlyle Group for $6.3 billion, including debt.

AT&T (up $0.35 to $41.85, Charts, Fortune 500) said Friday it will buy wireless communications services company Dobson Communications (up $1.31 to $12.42, Charts) for $2.8 billion in cash.

Wesfarmers, the owner of Australia's largest hardware chain, has agreed to buy retailer Coles Group Ltd. for about $17.7 billion in cash and stock, making it Australia's biggest takeover.

Elsewhere, shares of Bank of New York Mellon (up $2.81 to $44.25, Charts, Fortune 500) jumped 7 percent after the announced the completion of the merger that combined Mellon Financial and The Bank of New York.

And Virgin Media, whose biggest shareholder is Richard Branson, said it had been approached about a buyout but added it wasn't in discussions right now. It didn't identify the bidder. The company could be bought by private equity for $10 billion or more, according to published reports.

Meanwhile, Trump Entertainment Resorts (down $2.09 to $10.49, Charts) said it ended discussions to sell itself, sending its stock skidding about 17 percent. (Read more: Rolling the dice on casinos.)

In other corporate news, Amazon.com (up $1.20 to $69.61, Charts, Fortune 500) said pre-orders for the seventh and final installment of the Harry Potter series hit an all-time high in the United States and worldwide, sending the stock up 1.7 percent.

Apple (down $0.78 to $121.26, Charts, Fortune 500) shares fell less than 1 percent after the debut of the iPod maker's much-hyped iPhone.

Shares of Charles Schwab (up $1.48 to $22.00, Charts, Fortune 500) rose over 7 percent after the brokerage announced a $3.5 billion capital restructuring, including a $1-a-share special dividend.

Blockbuster (up $0.15 to $4.46, Charts, Fortune 500) named James Keyes as its new chairman and chief executive to replace current CEO John Antioco, sending shares of the video rental chain up 3.5 percent.

And Local.com (up $2.04 to $8.96, Charts) soared 30 percent after the search engine announced that it had been awarded a patent for a method of responding to directory assistance inquiries.

After the closing bell, shares of Movie Gallery (Charts) plummeted 45 percent after the movie rental chain said it has failed to meet the terms of its senior credit facility.

And InPlay Technologies (Charts) said its chief executive and chief financial officer Bob Brilon resigned, sending shares up 1 percent on Inet.

Market breadth was positive. On the New York Stock Exchange, winners topped losers by four to one on volume of 1.4 billion shares. On the Nasdaq, advancers topped decliners nearly two to one as 1.86 billion shares changed hands.

On the economic front, the Institute of Supply Management's monthly index came in at 56 in the month, after a 55 reading in May. Any reading above 50 indicates growth in the sector. Economists surveyed by Briefing.com expected the index to remain unchanged at 55.

Treasury prices rose, pushing the yield on the 10-year note down to 4.99 percent from 5.02 percent late Friday. Bond prices and yields move in opposite directions. It was the first time the yield on the 10-year note fell below 5 percent since June 7.

Oil prices rebounded after slipping below $70 a barrel in early trading. U.S. light crude rose 41 cents to close at $71.09 a barrel on the New York Mercantile Exchange.

COMEX gold for August delivery added $8.30 to $659.20 an ounce.

The dollar declined across the board, hitting a 26-year low against British pound and falling sharply against the euro and the yen.