The Dow Jones Industrial Average was up 45 points at 13,371, as 21 of its 30 components advanced.
Leading the gains among Dow stocks, General Motors Corp. jumped 4.5%.
Also among blue-chips, Johnson & Johnson rose 1.3%. A court late Friday ruled that Teva Pharmaceutical infringed on a patent for Aciphex, an anti-ulcer drug co-marketed by Johnson & Johnson.
Wal-Mart Stores Inc. fell 0.3% and Home Depot Inc. gained 0.4%. Both will report earnings Tuesday.
The S&P 500 index gained 3.4 points to 1,509, while the Nasdaq Composite rose 3.6 points to 2,565.
Big three deal
The distressed auto sector received a boost from the Chrysler deal, although it was widely expected.
Shares of parent DaimlerChrysler climbed 3.5%. The German automaker agreed to sell 80% of its U.S. unit -- while getting rid of its pension liabilities -- to Cerberus Capital Management, in return for an injection of $7.45 billion cash.
Ford Motor Co. , meanwhile, gained 4.8%. Ford's founding family is reportedly considering selling a controlling stake, according to a report from Bloomberg News.
Chrysler's sale to Cerberus also affected Magna International , which was one of the last bidder. Magna shares dropped 0.8%.
Deals, liquidity and the economy
The market has rallied impressively since mid-March, even amid slowing economic and earnings growth. Professional investors credit an impressive amount of global liquidity which continues to power stock prices through corporate share buy-backs, dividends, private equity buy-outs and mergers.
"The continued increase in stocks is flying in the face of a decidedly weakening economy," said Paul Nolte, director of investments at Hinsdale Associates.
"The flipside to the economic numbers has been the huge amount of merger news," Nolte said in a note. "Everyone is combing their favorite screens to ferret out the next possible takeover candidate."
In other deal news, Mylan Laboratories fell 2.2% before the open as it beat out Teva Pharmaceutical, paying $6.7 billion for the generic drug-making arm of Merck KGaA.
And Cardinal Health said it would pay $42.75 a share, or $1.5 billion, for Viasys Healthcare , a 35% premium to Friday's close.
Running out of steam?
The market rallied on Friday - with the Dow industrials gaining 110 points - after wholesale inflation and weak retail sales boosted hopes the Federal Reserve will eventually cut interest rates to boost a slowing economy.
Stocks have also rallied impressively since mid-March. But there are signs that the market may be running out of steam, according to Marc Pado, market strategist at Cantor Fitzgerald.
"This should be the start of the summer doldrums," he said. "It usually takes the entire month of May to see the trend established, but the market appears poised to start a small top and then the much-anticipated pullback."
By Nick Godt