The Dow Jones Industrial Average rose 99 points, or 0.7%, to 13,549.33, with shares of Alcoa climbing 1.8% to $37.01. The aluminum giant late Friday agreed to sell its packaging and consumer businesses to New Zealand-based Rank Group Ltd. for $2.7 billion. The deal is expected to close by the end of the first quarter.
Adding to the M&A mix, Dow component General Electric Co. said its GE Capital unit will purchase a bulk of Merrill Lynch & Co.'s middle-market commerce-finance business, which will allow the investment bank to raise about $1.3 billion for other portions of its business.
"Merger and acquisition activity in terms of Alcoa is positive, but there are a lot of year-end dynamics at work that are driving this market," said Paul Mendelsohn, chief investment strategist at Windham Financial Services.
The broader S&P 500 Index rose 12 points, or 0.8%, to 1,496.46.
The tech-heavy Nasdaq Composite gained 21 points, or 0.8%, to 2,713.50, lifted by Apple Inc. as its shares flirted with the $200-a-share mark.
Apple shares rose 2.5% to end at $198.80.
Wall Street held onto higher ground despite a reverse in course of shares in Merrill Lynch to end down 3% at $53.90.
They had climbed nearly 5% after the company said it reached a agreement under which it will raise up to $6.2 billion in a private placement of common stock with Singapore sovereign fund Temasek Holdings Pte. Ltd. and Davis Selected Advisors.
But the deal appears to have been done "way below the market price," said Jim Awad, chairman of W.P. Stewart Asset Management, resulting in Merrill's shares to end lower.
"Once we get through this holiday, seasonal party, there will be some sobering up in January," said Awad, who said his view was largely based on Merrill's share-price decline, as well as a decline in shares of Bear Stearns Cos. , another company that needs to raise capital, he said.
Bear Stearns shares closed down 1.3% at $88.80.
But other financial stocks moved higher after Bank of America said Friday that it and other consortium members Citigroup and J.P. Morgan Chase have dropped plans for a "superfund" -- partly because of a lack of interest from the funds it was intended to save. Citigroup led price performers to rise 2.5% to $37.01.
Wall Street extended its gains from Friday's rally after upbeat results from Research In Motion Ltd. bolstered the technology sector and financials drew strength on word
"That momentum [from Friday] may keep us going until we get some important economic data coming out toward the end of the week," said Mendelsohn.
Reports on sales of existing and new homes, durable goods orders and consumer confidence are among the reports scheduled to be released this week.
In other individual issues, FedEx Corp. shares dropped 2.3% to $92.13. Late Friday, the company said the Internal Revenue Service ordered the payment of back taxes and fines totaling $319 million for employees the firm misclassified as independent contractors.
Shares of ArcelorMittal , the world's No. 1 steelmaker, climbed 1.7% to $74.45 after the company announced two acquisitions with undisclosed terms, including Eisen Wagner in Austria and Uruguay's Cinter SA, which is at least its third deal in South America this month.
In currency action, with the dollar ticked higher against the yen at 114.29 yen. Meanwhile, the euro was trading at $1.4396, up from $1.4356 late Friday.
Crude futures for February bounced back from earlier losses to rise 0.9% at $94.13 on the New York Mercantile Exchange.
Gold futures for February delivery rose $1.10 or 0.1%, to $816.5 an ounce. Coppr futures for March delivery rallied 5.6 cents, or 1.8%, to $3.1535 a pound. Copper has risen more than 10% since Dec. 19.
By Carla Mozee