Deals boost stocks

Deals boost stocks

A burst of corporate deal-making is giving investors a shot of confidence about the US economy.

Stock indexes rose more than 1% today to post their biggest gains in about a month, breaking a three-day slide. The Dow Jones industrial average jumped 124 points, recouping much of what it lost last week.

Large acquisitions from Abbott Laboratories and Xerox vaulted shares of drugmakers and technology companies higher, and the buying spread to other parts of the market as investors hoped that the $6bn (€4.1bn) plus deals could be a sign that deal activity is finally picking up a year after the financial system nearly froze.

A resumption of corporate takeover deals would represent an important milepost in the economy’s recovery. Companies had grown so worried about the economy in the past year that they were hesitant to part with cash and often had trouble lining up financing.

A willingness by big companies to wager stock and borrow cash to bulk up their business also sets off a guessing game among investors about what the next takeover targets might be.

Just last week Dell said it would acquire technology company Perot Systems for $3.9bn (€2.67bn), and earlier this month Kraft Foods made an overture for candy maker Cadbury PLC for $16.7bn (€11.42bn) - the latest signs that big-time dealmaking could be staging a comeback.

Stocks have surged since March as investors jockeyed to stay ahead of a strengthening in the economy, but the pace of those gains has stirred worries that the market is overestimating the strength of the economy. The willingness of some companies to pursue deals is helping ease some of those worries and reassuring investors that credit is flowing again.

“It’s encouraging to all investors when you see companies buy because basically what that says is they’re in a more aggressive mode as opposed to being in the foetal position,” said Mark Coffelt, portfolio manager at Empiric Funds in Austin, Texas.

According to preliminary calculations, the Dow rose 124.17, or 1.3%, to 9,789.36, its biggest gain in more than a month. Last week, the Dow lost 155 points following lacklustre reports on housing and manufacturing.

The broader Standard & Poor’s 500 index rose 18.60, or 1.8%, to 1,062.98, and the Nasdaq composite index rose 39.82, or 1.9%, to 2,130.74.

Abbott Laboratories said today it would acquire the pharmaceutical business of Belgian chemicals maker Solvay for $6.6bn (€4.51bn), while and Xerox agreed to buy Affiliated Computer Services for about $6.4bn (€4.38bn).

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