Wall Street advances

Wall Street overcame early losses to close higher today as a drop in oil prices and a fresh round of acquisition activity helped boost investors’ confidence in the economy.

Gap surged more than 10% following a report that the retailer is considering strategic alternatives for the business, which could include a sale. There was also some 6 billion of deals announced that indicated merger and acquisition activity is off to a strong start in 2007.

Low energy prices also helped stocks reverse course from losses earlier in the session. Oil prices continued last week’s decline, initiated by a belief that heating oil supplies would go unused because of a mild US winter. Crude prices, now hovering around 56 per barrel, attempted a rebound earlier in the session.

Stock trading did carry an element of caution as investors turned their attention to fourth-quarter corporate earnings, which start tomorrow when Alcoa posts results. Several profit warnings from a number of companies – including airline UAL, electronics maker Molex, and telecommunications firm Tellabs - prevented indexes from gaining broader momentum.

Peter Dunay, an investment strategist with New York-based Leeb Capital Management, said investors were trading conservatively ahead of earnings reports. He said the biggest thing on the horizon was “the impact any kind of profit warnings are going to have”.

“This is one of those Mondays were people are doing a bit less until we see an impetus,” he said. “The market is at an inflection point. Energy is big, but it has been down so much over the past few weeks that the fact it’s up should be scaring participants too much.”

The Dow Jones industrial average rose 25.48, or 0.21%, to 12,423.49.

Broader stock indicators advanced. The Standard & Poor’s 500 index was up 3.13, or 0.22%, at 1,412.84, and the Nasdaq composite index added 3.95, or 0.16%, to close at 2,438.20.