Stocks in rebound mode

Wall Street advances as major gauges bounce off 12-year lows. Merck-Schering deal helps lift gloom

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By CNNMoney.com staff

NEW YORK (CNNMoney.com) -- Stocks turned higher Monday morning as investors considered Merck's $41 billion purchase of Schering-Plough and opted to scoop up shares hit in the recent selloff.

The Dow Jones industrial average (INDU) gained 78 points, or 1.1%, nearly an hour into the session. The S&P 500 (SPX) index rose 11 points, or 1.7%. The Nasdaq composite (COMP) gained 20 points or 1.6%.

Stocks slipped at the open, but managed to turn higher as the morning wore on.

Asian stocks slumped, with Tokyo's Nikkei index ending at a 26-year low after a 1.2% decline. European stocks were lower in afternoon trading.

U.S. stocks tumbled last week, although the Dow and S&P managed modest gains Friday that took them off 12-year lows.

Drugmaker merger: Merck & Co., (MRK, Fortune 500) one of the largest drugmakers in the world, said Monday that it had agreed to acquire another pharma company, Schering-Plough (SGP, Fortune 500).

The companies value the merger at $41.1 billion, or $23.61 per share of Schering stock, which is a 34% premium compared to Friday's closing price. Schering shareholders will receive 0.5767 share of Merck and $10.50 in cash for each Schering share.

The combined company will be called Merck, and will be led by current Merck CEO, Richard Clark. Both companies are based in New Jersey.

Anthony Conroy, head trader at BNY ConvergEx Group, said the merger agreement is a sign that "there's still value" in the markets. While this failed to lift stocks in pre-market trading, it could fuel confidence for a recovery "in the long run."

Merck stock was down about 10% in early trading, while Schering shares rallied 12%.

Job cuts: Newspaper publisher McClatchy said it would cut 1,600 jobs, or 15% of its workforce, because of a decline in advertising revenue. McClatchy owns The Miami Herald, Sacramento Bee and Anchorage Daily News, and has been making heavy debt payments since it bought Knight Ridder Inc. in 2006.

Banking: The beleaguered banking sector was in focus again Monday. Over the weekend, published reports - including one from Fortune - named some of the global banks that have been beneficiaries of the government bailout of insurer American International Group (AIG, Fortune 500).

Among the counterparties to billions in credit default swaps named: Goldman Sachs (GS, Fortune 500), Bank of America (BAC, Fortune 500) and Wachovia, which has been taken over by Wells Fargo (WFC, Fortune 500).

Oil and money: Oil gained $2.68 to $48.20 a barrel on the New York Mercantile Exchange. The dollar gained against the euro, the yen and the British pound. To top of page

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