Stocks rise as investors look to takeover discussions as promising sign for economic recovery

Stocks rise as takeover news boosts traders’ mood

NEW YORK — News about corporate takeovers is making investors more optimistic about the economy and giving them new reasons to buy stocks.

Stocks rose Tuesday as investors were encouraged by takeover news from overseas. Surging oil and gold prices pushed energy and materials stocks higher.

Deutsche Telekom AG and France Telecom SA said they plan to combine their British mobile phone units — T-Mobile UK and Orange UK — to form that country’s biggest mobile operator. And while Cadbury PLC rejected a takeover bid from Kraft Foods Inc., companies’ reviving interest in making acquisitions is being seen as a welcome sign for the economy.

The increase in corporate takeover activity suggests an improvement in businesses’ confidence and reinforces views that the worst of the global economic downturn could be over.

Still, many investors doubt that a strong recovery can be sustained over coming months, as unemployment continues to rise, putting pressure on households’ spending.

A weekend pledge by the world’s 20 biggest economies to support the global recovery with stimulus efforts is contributing to the a positive tone in the markets.

George F. Shipp, chief investment officer at Scott & Stringfellow in Virginia Beach, Va., said U.S. markets are advancing in part to catch up with overseas trading after the Labor Day holiday in the U.S. He also said that the takeover talk about Cadbury underscores that there are some companies faring better than others in the recession.

“Some companies are doing reasonably well,” he said. “Chocolate is less susceptible to whatever is going to happen in mortgages and banking and unemployment.”

Dealmaking could boost hopes for the economy but problems remain with unemployment and weak consumer spending. It will be difficult for the economy to pull out of the recession if consumers don’t increase what they’re willing to put down at retailers and other businesses.

In midday trading, the Dow Jones industrial average rose 26.67, or 0.3 percent, to 9,467.94. The broader Standard & Poor’s 500 index rose 5.60, or 0.6 percent, to 1,022.00, and the Nasdaq composite index rose 8.53, or 0.4 percent, to 2,027.31.

Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.44 percent from 3.45 percent late Friday.

Among stocks moving on takeover talk, Cadbury jumped $14.70, or 39 percent, to $52.16. Kraft fell $1.38, or 4.9 percent, to $26.72.

The dollar fell against other major currencies and gold — which is typically bought as a safe haven asset — at times topped $1,000 an ounce. With many commodities priced in dollars a weaker greenback makes prices rise.

Light, sweet crude rose $2.98 to $71 a barrel on the New York Mercantile Exchange.

Tom Phillips, president of TS Phillips Investments in Oklahoma City, said investors are buying gold because they are nervous about the economy and rising deficits but don’t want to miss more gains in the stock market. The S&P 500 index has jumped 50 percent from a 12-year low in early March.

“It is a flight to safety. It’s kind of like everyone is hedging their bets. They want to be in the market because they don’t want to miss out, but they’re spooked,” he said.

Freeport-McMoRan Copper & Gold Inc. rose $1.73, or 2.7 percent, to $67.78, while oilfield services company Schlumberger Ltd. rose $1.90, or 3.4 percent, to $57.77.

The Russell 2000 index of smaller companies rose 3.03, or 0.5 percent, to 573.53.

Three stocks rose for every one that fell on the New York Stock Exchange, where volume came to 498.7 million shares compared with 355.3 million shares traded at the same point Friday.

Overseas, Japan’s Nikkei stock average rose 0.7 percent. In afternoon trading, Britain’s FTSE 100 rose 0.3 percent, Germany’s DAX index advanced 0.3 percent, and France’s CAC-40 rose 0.3 percent.