Stocks spark ahead of holiday

NEW YORK (CNNMoney.com) -- Stocks posted solid gains for the third straight session Tuesday, as investors welcomed more acquisition news ahead of the July 4 holiday.

The Dow Jones industrial average (up 41.87 to 13,577.30, Charts) and the broader Standard & Poor's 500 index (up 5.44 to 1,524.87, Charts) gained a little more than 0.3 percent.

The tech-heavy Nasdaq composite index (up 12.65 to 2,644.95, Charts) was nearly 0.5 percent higher, closing at a fresh six-year high.

All three major gauges kicked off the second half of 2007 with a bang Monday, lifted by a better-than-expected report on manufacturing growth, a flurry of buyout news and a decline in Treasury yields.

"The ISM report yesterday really charged people up," said Harry Clark, chief executive of Clark Capital Management, and helped boost optimism about the second half of the year.

But trading this week is likely to be very light due to the July 4 holiday, despite the employment report slated for Friday, Clark said. "No one is going to be around to act on it."

U.S. stock markets closed at 1 p.m. ET and bond markets closed at 2 p.m. ET. U.S. financial markets will be closed Wednesday July 4.

In more merger news, snack food maker Kraft (down $0.87 to $34.66, Charts) announced that it bid $7.2 billion for the global biscuit business of Groupe Danone (down $0.20 to $16.65, Charts). Danone will consider the offer on a exclusive basis.

Google (up $3.96 to $534.34, Charts, Fortune 500) acquired GrandCentral Communications, which lets users manage their existing phones and voice mailboxes over the Web.

And shares of Wendy's International (up $1.00 to $38.39, Charts) gained nearly 3 percent after billionaire investor Nelson Peltz said his Triarc Cos. (down $0.25 to $15.75, Charts) would be a "natural, strategic buyer" for the fast-food chain.

In other corporate news, Ford Motor (down $0.22 to $9.42, Charts, Fortune 500) reported June auto sales sank 8.1 percent, while Chrysler Group's sales fell 1 percent.

General Motors (down $0.04 to $37.98, Charts, Fortune 500) said sales tumbled 21 percent in June, sending shares of the automaker lower in extended trade.

Oracle (Charts, Fortune 500) edged higher after the business software company filed a suit against SAP, which admitted one of its units made "inappropriate downloads" of its computer code.

Apple (up $5.91 to $127.17, Charts, Fortune 500) gained 5 percent after a report suggested that the iPod maker will generate hefty profit margins thanks to its much-hyped iPhone.

And shares of Avanir Pharmaceuticals (up $0.33 to $2.70, Charts) spiked 15 percent after the drug company said it entered into a deal to sell its schizophrenia drug FazaClo.

On the downside, shares of Caterpillar (down $2.46 to $77.99, Charts, Fortune 500) fell over 3 percent - making the stock the Dow's biggest loser - after a UBS analyst downgraded the equipment maker to "Reduce" from "Neutral."

Of the 30 stocks in the Dow, 25 rose and five fell.

Market breadth was positive. On the New York Stock Exchange, winners topped losers by five to three on volume of 760 million shares. On the Nasdaq, advancers topped decliners eight to seven as 1.1 billion shares changed hands.

On the economic front, new orders at factories fell a smaller-than-forecast 0.5 percent in May, logging the first decline in four months, according to the Commerce Department.

Pending sales of existing homes unexpectedly fell to their lowest level in more than 5-1/2 years in May, according to the National Association of Realtors.

Treasury prices edged lower, raising the yield on the 10-year note to 5.04 percent, after a rally Monday took yields below the 5 percent mark for the first time since early June.

The dollar was higher against the euro but little changed versus the yen.

Oil prices rose 16 cents to $71.25 a barrel on the New York Mercantile Exchange.

COMEX gold for August delivery lost $3.40 to $655.80 an ounce.

Monday's rally on Wall Street helped lift sentiment overseas, where markets in Asia and Europe finished higher.