Merrill shakes up sleepy session

NEW YORK (CNNMoney.com) -- Stocks made headway Monday morning as news from Merrill Lynch helped boost the financial sector and an upbeat retail sales report suggested consumer confidence is stronger than expected.

The Dow Jones industrial average (INDU) gained 0.5 percent.

The broader S&P 500 index (SPX.X) climbed 0.5 percent, while the tech-fueled Nasdaq (COMPX) rose 0.5 percent.

Trading volume is expected to be light Friday; markets will close three hours early.

Markets rallied Friday on the strength of Blackberry maker Research In Motion's quarterly earnings and a report of a possible capital infusion for troubled banking giant Merrill Lynch.

Merrill Lynch, which has been battered by the credit crisis, announced early Monday that it will sell a $4.4 billion stake to Temasek Holdings, Singapore's state-owned investment company, and $1.2 billion to an advisory firm. The moves are aimed at shoring up the company's balance sheet.

The Wall Street bank also announced Monday that it will sell its commercial finance unit, Merrill Lynch Capital, to the finance branch of General Electric.

Meanwhile, a Wachovia (WB, Fortune 500) analyst lowered his earnings forecast for Merrill Lynch Monday, warning that more writedowns could be in store for the company that has already reported close to $8 billion in losses due to souring mortgage backed securities.

However, investors appeared to disregard the analyst report, focusing instead on Merrill's efforts to bolster its capital position. Shares of Merrill Lynch rose 4 percent in early trading.

Other financials like, Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500) and JP Morgan (JPM, Fortune 500) were also higher.

In other news, retailers are reporting strong sales for Sunday's pre-holiday shopping frenzy, a sign that previously low consumer confidence numbers could be inaccurate.

Treasury prices fell, raising the yield on the 10-year note to 4.19 percent from 4.16 percent late Friday. Treasury prices and yields move in opposite directions.

U.S. light crude oil for January delivery fell 49 cents to $92.82 on the New York Mercantile Exchange.

In currency trading, the dollar fell versus the euro and gained against the yen.

COMEX gold for February delivery rose $3.10 to $818.50 an ounce.