Stocks start July with fireworks

NEW YORK (CNNMoney.com) -- The second half of 2007 got off to a strong start Monday as investors cheered more merger news and a better-than-expected report on manufacturing activity.

The Dow Jones industrial average (up 91.45 to 13,500.07, Charts) gained 90 points, or 0.7 percent.

The tech-heavy Nasdaq composite index (up 22.00 to 2,625.23, Charts) rose 0.8 percent. The broader Standard & Poor's 500 index (up 11.13 to 1,514.48, Charts) was 0.7 percent higher.

Major gauges traded in seesaw fashion last week, but were higher Monday thanks, in part, to a flurry of deal news, despite lighter volume with many traders on vacation.

U.S. markets are set to close early Tuesday and all day Wednesday due to the July 4 holiday.

Hugh Johnson, chairman of asset management company Johnson Illington Advisors, credited Monday's strong start mostly to a rally in the bond market, causing a retreat in interest rate yields and the ISM report on manufacturing, which suggested that the manufacturing sector expanded in June.

However, "it'll be a volatile week," he cautioned, with investors turning their attention to reports on factory orders, auto sales and the employment report all due later in the week. "That's going to keep some traders at work."

In merger news, Canadian telecommunications operator BCE (up $1.41 to $39.20, Charts), the parent of Bell Canada, agreed to be acquired for $32.6 billion and taken private by a group including Ontario Teachers' Pension Plan, Providence Equity Partners Inc. 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 $1.08 to $64.21, Charts) said it agreed to be taken private by private equity firm Carlyle Group for $6.3 billion.

AT&T (up $0.24 to $41.74, Charts, Fortune 500) said Friday it will buy wireless communications services company Dobson Communications (up $1.33 to $12.44, 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.

And Richard Branson's Virgin Media is also reported is in deal talks. The company could be bought by private equity for $10 billion or more, according to published reports.

In other corporate news, Amazon.com (up $1.03 to $69.44, Charts, Fortune 500) said pre-orders for the seventh and final installment of the Harry Potter series reached an all-time high in the United States and worldwide, sending shares up over 1 percent.

Apple (down $0.60 to $121.44, Charts, Fortune 500) shares fell 0.5 percent amid mixed reports on initial sales of the iPod maker's much-hyped iPhone.

And Local.com (up $4.18 to $11.10, Charts) soared over 50 percent after the search engine announced that it had been awarded a patent for the method of responding to directory assistance inquiries.

Market breadth was positive. On the New York Stock Exchange, winners topped losers by four to one on volume of 500 million shares. On the Nasdaq, advancers topped decliners nearly two to one as nearly 750 million shares changed hands.

In economic news, 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 were up slightly, with the yield on the 10-year note slipping to 5.01 percent from 5.02 percent late Friday.

Oil prices fell in early trading. U.S. light crude lost 98 cents to $69.70 a barrel on the New York Mercantile Exchange.

In global trade, European markets slipped in afternoon trading as investors worried about problems in the subprime sector and inflation. Concerns about terrorism also rattled investors as authorities tightened security after failed attacks in Scotland and London.

Markets in Asia mostly finished lower.

The dollar was lower against the euro and the yen.

COMEX gold for August delivery added $9.10 to $660 an ounce.