Is That a Bull Walking Up Wall St.?

NEW YORK, Sept. 28 -- Investors are regaining confidence as corporate dealmaking heats up and initial public offering markets begin to thaw, sending U.S. stocks higher Monday and setting up the Dow Jones industrial average for its best quarterly performance in more than a decade.

In recent weeks, a pickup in mergers and acquisitions activity involving high-profile companies gave investors hope that companies are focusing again on generating growth, not simply surviving the recession. Several large deals announced Monday provided further evidence of the recovery, sending shares higher as investors searched for the next potential acquisition target.

Before the opening bell, Xerox announced that it would purchase Affiliated Computer Services in a $6.4 billion deal, boosting Affiliated shares by 14 percent. Abbott Laboratories said it would buy Belgian conglomerate Solvay's pharmaceutical business for about $6.6 billion, while Johnson & Johnson bought a minority stake in Crucell for $443 million.

Earlier this month, Walt Disney announced that it would acquire Marvel Entertainment for $4 billion, and Kraft Foods made an unsolicited $16.7 billion bid for Cadbury.

"You continue to see companies making billion-dollar bets in this marketplace, and that adds some excitement and enthusiasm for the health of the markets and the economy," said Arthur Hogan, chief market analyst at Jefferies & Co. "People are trying to make the next best guess."

The Dow Jones industrial average of 30 blue-chip stocks finished the day up by 124.17 points, or 1.28 percent, to 9789.36. The Standard & Poor's 500-stock index, a broader market measure, rose 18.60 points, or 1.78 percent, to 1062.98. The daily gains were the largest for both indexes in five weeks. The Dow and S&P are on track to end the quarter with their best performances since the fourth quarter of 1998.

The tech-heavy Nasdaq composite index was up by 39.82 points, or 1.9 percent, to 2130.74. The index was helped by an analyst report from Barclays Capital, which, citing improved business outlook, upgraded Cisco to "overweight" from "equal weight."

Dealmakers remain cautious but say they are encouraged by the recent activity. Conditions, they say, have noticeably improved since the beginning of the year, when the stock market was in the depths of the financial crisis, investor confidence was low and bank lending was tight. Accordingly, initial public offerings of private companies have also picked up from the anemic levels of a year ago.

"People are now doing transactions they focused on perhaps a month ago, perhaps six months ago, perhaps two years ago," said Michael Boublik, chairman of mergers and acquisitions for the Americas at Morgan Stanley. "We have some clients now who are bringing things back to the front burner that have been mothballed for either months or years."

While the public offering and merger activity is unlikely to reach record levels of 2007 anytime soon, there should be a slow, steady rise in the coming months and years, bankers say.

"Many people have shifted away from the survive-the-tsunami mentality to, 'Okay, we're back to something of an equilibrium,' " said Dan Cummings, head of equity capital markets for the Americas for Bank of America Merrill Lynch. "There is a guarded sense of optimism as CEOs and boards of directors approach new initiatives. . . . They're not going crazy. There's no sense of euphoria. People aren't trying to do everything at once, but they're certainly back in and considering ways to grow again."

Another contraction in credit or a tumble in the stock market -- which an increasing number of analysts are predicting because of the extraordinary rise in equities in recent months -- could hamper the recovery in mergers and acquisitions, experts acknowledge.

But Harry McMahon, executive vice chairman of Bank of America Merrill Lynch, noted that recent transactions such as the Disney-Marvel deal, in which his team advised Marvel, have been funded in part by cash. In contrast, nearly a third of deals during the peak of the mergers and acquisitions market in 2007 featured large amounts of debt.

"Many of these strategic acquirers are liquid and less dependent on capital markets to affect their transactions," he said.