The Dow Jones Industrial Average rose 32 points to 13,397, as 23 of its 30 components advanced.
Leading the gains among blue chips, Alcoa rose 5%. The aluminum giant has offered $73.25 a share, or $33 billion, in cash and stock for Canada's Alcan . The offer represents a 32% premium to Alcan's average closing price over the past 30 days.
Alcan's stock jumped 34%.
The S&P 500 index advanced 3.7 points to 1,509, while the Nasdaq Composite advanced 6.4 points to 2,578.
Among technology shares on the Nasdaq, Yahoo Inc. was the most heavily traded stock, losing 2.2%. A report late Friday said Microsoft Corp. was no longer holding talks about a possible merger with Yahoo.
Trading volumes showed 100 million shares exchanging hands on the New York Stock Exchange and 139 million on the Nasdaq stock market. Advancing issues outpaced decliners by 17 to 9 on the NYSE and by 7 to 5 on the Nasdaq.
Elsewhere, BAE Systems is offering $88 a share, or $4.1 billion, for defense contractor Armor Holdings , which gained 5%.
Rio Tinto rose 2.4% after analysts said BHP Billiton could afford to buy the company. The gains extended a rise in the miner's shares after Merrill Lynch said that a private-equity consortium could afford to buy BHP Billiton .
Merger activity and share buybacks have remained key drivers of the market's advance as cash-rich companies put their money to use. A smaller pool of overall stock, together with speculation about more mergers, helps lift the broad market.
Still, investors are also now faced with the reality of a slowing economy, as shown in last week's below-par employment report for April. Attention will now be turning toward the Federal Reserve, which meets Wednesday to decide on interest rates.
While the Fed is widely expected to leave rates unchanged, investors hope it will acknowledge signs of a slowing economy, which could open the door for rate cuts later this year.
The dollar was down against both the euro and the yen in early action, following the weak U.S. jobs report on Friday. The euro also received a slight boost after the as-expected victory of right-wing candidate Nicolas Sarkozy in the French presidential election.
Later in the week, the European Central Bank is expected to leave interest rates unchanged -- but also to signal a June rate rise.
Crude-oil futures slipped 76 cents to $61.17 a barrel, while gold futures rose $2.60 to $692.30 an ounce.
Elsewhere, Motorola shares dropped 1% as Carl Icahn is due to push for a seat on its board at a meeting in Chicago.
ABN Amro fell 1.6%. The Dutch bank turned down a $24.5 billion offer for its LaSalle operation from banks led by the Royal Bank of Scotland, saying too many conditions are attached. Instead it prefers a $21 billion offer from Bank of America .
News Corp., which is bidding $5 billion for Dow Jones, sold a stake in Australia's Fairfax Media for 380 million Australian dollars. Dow Jones is the owner of the Journal and MarketWatch, the publisher of this report.
Warren Buffett's Berkshire Hathaway said first-quarter earnings rose 12% on insurance gains. He warned over the weekend that global warming could increase hurricane losses at its catastrophe reinsurance unit.
By Nick Godt