Stocks rise on new M&A activity

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NEW YORK -- Stocks advanced Tuesday ahead of the July Fourth holiday, as investors drew confidence from a smaller-than-expected dip in factory orders and new merger-and-acquisition activity.

The market was relieved to hear from the Commerce Department that U.S. factories saw demand dip in May by just 0.5%; most analysts had predicted a decline of more than 1%.

Giving the market an extra boost, Kraft Foods Inc. said it offered $7.2 billion to buy the biscuit division of French food company Groupe Danone SA, while Canadian miner Teck Cominco Ltd. bid 4.1 billion Canadian dollars, or $3.87 billion, for Canadian copper miner Aur Resources Inc.

The M&A activity helped the stock market extend Monday's steep gains, but most analysts aren't taking this week's movements too seriously, given that trading volumes are low. The stock markets are scheduled to close early at 1 p.m. EDT.

"Historically, the two days leading up to the July 4th holiday have been positive for the equity markets," said Michael Sheldon, chief market strategist at Spencer Clarke LLC. "In general, volatility levels have been rising over the last couple of weeks. You're likely to see a pickup in volatility in the third quarter."

In late morning trading, the Dow Jones industrial average rose 45.04, or 0.33%, to 13,580.47.

Broader stock indicators also climbed. The Standard & Poor's 500 index was up 5.01, or 0.33%, at 1,524.44, and the Nasdaq composite index was up 9.47, or 0.36%, at 2,641.77.

Bonds fell after the better-than-anticipated factory orders data. The yield on the benchmark 10-year Treasury note rose 5.03% from 4.99% late Monday.

Investors appeared to shrug off the National Association of Realtors' index for pending sales of existing homes, which declined in May at a seasonally adjusted annual rate of 3.5% compared to April and is 13.3% lower than its level a year ago.

Kraft fell 67 cents to $34.86, after saying it made an offer to buy such European brands as LU, Petit Dejeuner, Tuc, and Mikado from Danone. Danone, which rose 2% in Paris trading, said its board is considering the bid on an exclusive basis.

Meanwhile, Ford Motor Co. said late Monday it may take a third-quarter pretax charge of $1.47 billion linked to an offer for some of its debt. The company will also be in focus, along with Dow component General Motors Corp., as automakers report June sales. Ford dropped 33 cents, or 3.4%, to $9.31.

Caterpillar Inc., another of the 30 Dow components, weighed on the blue chip index after being downgraded by a UBS analyst. The heavy machinery maker, which had been the biggest gainer in the Dow Monday, fell $2.43, or 3%, to $78.02.

Though the average U.S. retail price of a gallon of gasoline has fallen below $3, investors are keeping an eye on crude oil prices. A barrel of light sweet crude fell 29 cents to $70.80 on the New York Mercantile Exchange, after closing at a 10-month high Monday.

The dollar rose against most other major currencies, except the British pound, which has risen to 26-year highs versus the U.S. currency. Gold prices slipped.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 324.5 million shares.

The Russell 2000 index of smaller companies rose 2.37, or 0.28%, to 847.43.

Overseas, Japan's Nikkei stock average rose 0.02%. Britain's FTSE 100 rose 0.79%, Germany's DAX index added 1.34%, and France's CAC-40 rose 0.88%.
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