Stocks stage recovery

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NEW YORK (CNNMoney.com) -- Stocks surged Monday as investors shrugged off a spate of negative company news and opted to scoop up a variety of shares battered in last week's selloff.

The Dow Jones industrial average (INDU) added 1%. The broader Standard & Poor's 500 (SPX) index gained 1.1% and the Nasdaq composite (COMP) rose nearly 1.8%.

After the close, Hewlett-Packard (HPQ, Fortune 500) said its in talks to purchase EDS (EDS, Fortune 500), confirming earlier reports that speculated a deal for the computer services company could be worth $12 billion to $13 billion.

Stocks slumped last week, for the first time in a month, as record oil and gas prices exacerbated fears about inflation and AIG's weak quarter revived worries about the credit crisis.

Those concerns remained in place Monday, but the selloff last week also gave investors an opportunity to step back in at somewhat lower levels, said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.

"You essentially had news late Friday and this morning that was negative, but people are ignoring it and playing the technical trade," he said. Because the major gauges tested key levels next week and were able to hold onto them, there is now the possibility of bouncing for a few sessions, he said.

In addition, investors continue to have a better perspective on the outlook for the economy, following the series of Federal Reserve interest rate cuts and monetary infusions.

"Earnings season is winding down and the bulls are relieved that it wasn't worse," Detrick said. "And there's a sense that the Fed [Federal Reserve]has done its job and that some of the economic news has shown improvement."

The economic news will need to continue showing that improvement over the next few months in order for stocks to post bigger gains beyond the recent range.

However, even if stocks are rangebound for a while, the sentiment seems to have improved, said Kenny Landgraf, principal at Kenjol Capital Management.

"There's been somewhat of a restoration of confidence," Landgraf said. "That doesn't mean we won't have more problems, but there is a sense that conditions have improved."

Tuesday brings reports on April retail sales and March business inventories and earnings reports from Liz Claiborne (LIZ, Fortune 500) and Wal-Mart Stores (WMT, Fortune 500).

Company news: The Nasdaq got a boost from Research In Motion (RIMM), which soared after it announced its new version of its best-selling Blackberry smartphone, which has been updated with features meant to make it more of a competitor to Apple (AAPL, Fortune 500)'s iPhone.

Bond insurer MBIA (MBI) reported a $2.4 billion quarterly loss as it contended with ongoing problems in the credit market and took billions in writedowns. Despite this, shares jumped 4.5%.

Sprint Nextel (S, Fortune 500) reported results that fell from a year earlier, as it lost monthly subscribers and had to pay severance and other charges. The results, excluding items, nonetheless topped analysts' forecasts. Shares fell 1.5%.

FedEx (FDX, Fortune 500), often seen as a proxy for the economy, warned that fiscal fourth-quarter earnings won't meet forecasts due to surging fuel costs. Shares were little changed.

AIG (AIG, Fortune 500) slumped 4.5% in active trading after the company's former chief executive said the insurer was in crisis and should postpone its annual general meeting scheduled for Wednesday.

Clear Channel (CCU, Fortune 500) rallied 9.6% in active New York Stock Exchange trading on news that the company and its prospective buyers are in settlement talks regarding whether banks have to fund promised loans of $19.5 billion. Earlier, a judge delayed the start of the trial over financing to Tuesday from Monday, raising hopes that a settlement could be reached.

Cablevision (CVC, Fortune 500) is buying New York newspaper Newsday for $650 million from Tribune Co. (TXA), beating out News Corp (NWS, Fortune 500) CEO Rupert Murdoch, who withdrew his own $580 million bid on Saturday.

Market breadth was positive. On the New York Stock Exchange, winners beat losers by over 7 to 3 on volume of 1.05 billion shares. On the Nasdaq, advancers topped decliners two to one on volume of 1.77 billion shares.

Commodities: U.S. light crude oil for June delivery fell $1.73 to settle at $124.23 per barrel on the New York Mercantile Exchange after settling at a record $125.96 per barrel on Friday.

The national average price for a gallon of regular unleaded gas rose to a record $3.718 from $3.707 the previous day, according to AAA. It was the fifth record in a row.

COMEX gold for June delivery fell 90 cents to settle at $885.80 an ounce.

Other markets: The dollar fell versus the euro and rose against the yen.

Treasury prices fell, raising the yield on the benchmark 10-year note to 3.78% from 3.77% late Friday. Bond prices and yields move in opposite directions.