MARKET SNAPSHOT: U.S. Stocks Rise As Deal Activity Fuels Optimism

By Kate Gibson, MarketWatch

NEW YORK (MarketWatch) -- U.S. stocks caught an updraft from the financial sector Tuesday after a large banking acquisition heightened expectations for more deals, and the S&P 500 Index rose for the fourth straight session.

"This is just the start; expect more cross-border link-ups," Anthony Michael Sabino, professor of law and business at St. John's University in New York, said of Toronto-Dominion Bank's proposed $6.3 billion takeover of Chrysler Financial.

"Unencumbered by toxic assets, the larger and stronger Canadian banks are in a prime position to scoop up U.S. financial firms in need of rescue," said Sabino.

The Dow Jones Industrial Average (DJI) closed up 55.03 points, or 0.5%, at 11,533.16, with 20 of its 30 components on the rise, led by financial stocks. Bank of America Corp. (BAC) gained 2.9%, J.P. Morgan Chase & Co. (JPM) added 2.6% and American Express Co. (AXP) rallied 1.7%.

The close above 11,500 may prove notable. Before Tuesday, the Dow had made three attempts to close above that level over the prior 10 days, and failed at that point of resistance, noted Fred Dickson, chief investment strategist at Davidson Cos.

The S&P 500 (SPX) ended up 7.52 points, or 0.6%, to 1,254.6. The financial sector was the best performer among the index's 10 industry groups, while consumer staples lagged.

The Nasdaq Composite Index (RIXF) gained 18.05 points, or 0.7%, to 2,667.61.

Both the S&P 500 and Nasdaq have been notching new 2010 closing highs, levels that could keep funds from looking to hike their cash or take a more cautious stance ahead of the new year, analysts said.

"It's sort of a self-fulfilling prophecy. What can't take the market down will only make it stronger," said Marc Pado, U.S. market strategist at Cantor Fitzgerald.

For every issue that fell, more than two advanced on the New York Stock Exchange, where volume topped 810 million.

On Monday, NYSE volume was a mere 830 million shares, versus a 10-week average of 1.06 billion.

"Yesterday's volume might be an early warning that this year's seasonally slow week may be even more dramatic than anticipated," said Pado.

Mergers and tech earnings were a bright spot.

Adobe Systems Inc. shares (ADBE) gained 6% after the graphic-software maker reported a profit that beat expectations. Jabil Circuit Inc. (JBL) shares climbed 11% after the company's outlook exceeded Wall Street projections.

"Tech has been a powerful leadership group, so this kind of positive forward-looking comment could help," offered Pado.

In addition to Toronto-Dominion Bank's (TD) agreement to acquire the lending arm of auto manufacturer Chrysler, Dutch chemicals company Royal DSM NV said it plans to purchase biotechnology firm Martek Biosciences Corp. (MATK) for $1.09 billion.

As Wall Street winds down the year, investors could view their dividend glass as either half full or half empty, depending on one's perspective.

Dividend income climbed 8.8% in 2010, and a 9% hike is likely in store in the year ahead, according to Howard Silverblatt, a senior index analyst at S&P Indices.

The less cheery news is that dividend payments remain 18.5% below where they stood in 2008, and it won't be until 2013 for dividends to return to those loftier levels, wrote Silverblatt Tuesday research note.