Strong earnings, takeovers send stocks higher

By Stan Choe

Associated Press

Published: Monday, Oct. 24 2011 12:30 p.m. MDT

NEW YORK — Stocks gained steadily Monday on a round of corporate takeovers and reports that Europe's bailout fund will be larger than anticipated. The Dow Jones industrial average was up nearly 110 points in the early afternoon. The Nasdaq composite index turned positive for the year.

Mattel and J.M. Smucker were among companies that rose after announcing acquisitions. The takeovers helped push the Russell 2000 index of small companies up 3 percent as investors moved money into higher-risk assets and looked for companies that might become takeover targets.

Investors are still waiting for a resolution to Europe's debt problems. European leaders said they made progress at a weekend summit and plan to unveil concrete plans for containing the crisis by Wednesday. The Dow was up about 40 points in the first hour of trading but moved steadily higher through midday following reports that Europe's takeover fund will be greatly expanded.

"Investors are starting to get the sense that European governments are finally starting to get serious and have developed a sense of urgency to fix their problems," said Phil Orlando, chief equity strategist at Federated Investors.

"The focus is turning back to U.S. fundamentals, which have improved sharply over the last three weeks," Orlando said. He cited improvements in manufacturing, consumer spending and corporate earnings.

Even with concerns about Europe, U.S. companies are still reporting bigger profits. "Although there is a good deal of economic and political uncertainty in the world, we are not seeing it much in our business at this point," Caterpillar Chief Executive Doug Oberhelman said.

The maker of construction equipment reported a 44 percent surge in income, more than Wall Street analysts were expecting, thanks to strong growth in exports. The company said it expected the global economy to continue recovering, albeit slowly.

The Dow Jones industrial average rose 107, or 0.8 percent, to 11,915 at 2:15 Eastern. Caterpillar jumped 5 percent, the most of the 30 companies in the Dow.

The Standard & Poor's 500 index gained 15 points, or 1.2 percent, to 1,253. The Nasdaq composite rose 60, or 2.3 percent, to 2,697. The gains turned the Nasdaq positive for the year. The S&P 500 is the only major market index that remains lower than where it started the year.

Strong earnings reports from McDonald's Corp. and other big U.S. companies last week drove the Dow Jones industrial average to its third straight weekly gain. The S&P 500 finished the week at its highest level since Aug. 3, just before Standard & Poor's downgraded the U.S. government's credit rating.

Other major U.S. companies due to report earnings this week include UPS Inc., Ford Motor Co. and Procter & Gamble.

Analysts expect companies in the S&P 500 to report earnings growth of 14 percent for the third quarter, according to data provider FactSet. They expect a 10 percent gain in revenue.

Expenses are also expected to climb. Higher costs for raw materials helped drag down income 8 percent at Kimberly-Clark Corp., which reported results Monday. The stock fell 5 percent. The company is a major consumer products maker whose brands include Huggies and Kleenex.

Higher costs also hurt cigarette maker Lorillard, which reported a 3 percent drop in income. Lorillard's stock fell 0.8 percent.

A series of corporate deals helped lift the market.

— HealthSpring Inc. jumped 33 percent after Cigna Corp. said it will buy the health insurer for about $3.8 billion in cash. Cigna fell 0.4 percent.

— RightNow Technologies Inc. gained 19 percent after Oracle Corp. said it will buy the tech service company for about $1.5 billion. Oracle rose 0.8 percent.

— Mattel Inc. rose 2 percent after it agreed to buy Hit Entertainment, the owner of the Thomas & Friends and Barney brands, for $680 million in cash.

— The J.M. Smucker Co. added 1 percent after it bought most of Sara Lee Corp.'s North American foodservice coffee operations for about $350 million.

Asian and European markets rose earlier Monday after Japan said its exports grew for a second straight month in September and a report showed China's industrial production returned to growth in October. Japan's Nikkei 225 index rose 1.9 percent, Hong Kong's Hang Seng index rose 4.1 percent and South Korea's Kospi index rose 3.3 percent.

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