Stocks climb after AIG agrees to sell key business; S&P 500 index turns positive for 2010

Buyouts lift stocks to highest level since Jan.

NEW YORK — Major stock indexes rose to their highest levels in more than a month Monday after corporate buyouts raised hopes about the economy.

The Dow Jones industrial average rose 79 points. The Standard & Poor’s 500 index, the basis of many mutual funds, erased its losses for the year. The Nasdaq composite index also turned positive for 2010 after a Japanese drugmaker said it was pursuing OSI Pharmaceuticals Inc. and SanDisk Corp. raised its revenue forecast.

The biggest boost for the market came from insurer American International Group Inc., which agreed to sell its prized Asian life insurance business to Britain’s Prudential PLC for $35.5 billion. It is seen as a sign of confidence in the economy when big businesses go ahead with takeovers.

AIG wants to sell the division, known as AIA Group, as part of its plan to streamline operations and repay the government. AIG received $182.5 billion from the U.S. government in September 2008. It had reduced that amount to $129.26 billion by end of last year but is still majority-owned by taxpayers.

Stocks also rose on hope that European nations will announce a bailout deal to help Greece with its mounting debt problems. Stocks around the world have been hit at times in recent months because of concerns debt problems in Greece would spread to other countries and undermine Europe’s shared currency, the euro.

European Union and Greek officials are meeting and media reports said a deal could be hammered out soon that would involve state-owned banks in Europe buying Greek government bonds.

The corporate takeovers and the possibility of some fix for Greece’s problems bolstered a sense that the economy could continue to rebound. Major stock market indexes rose more than 2 percent in February for their best performance since November. Stocks have jumped in the past 12 months but investors have still been concerned that a rebound in the economy will stall.

Trading volume was light Monday, which is a sign that many investors aren’t taking part in the buying.

Dave Hinnenkamp, chief executive KDV Wealth Management in Minneapolis, said the deals signal that companies are becoming more confident in the economic recovery and willing to spend some of their cash.

“They are at a point now where they can see that the light at the end of the tunnel isn’t a train,” Hinnenkamp said.

The Dow rose 78.53, or 0.8 percent, to 10,403.79, its highest close since Jan. 20. The Dow is down 24 points for the year, though still down 322 points from a 15-month high on Jan. 19.

The broader S&P 500 index rose 11.22, or 1 percent, to 1,115.71, its best level since Jan. 21. It is now up 0.1 percent for 2010. The Nasdaq rose 35.31, or 1.6 percent, to 2,273.57. It is up 0.2 percent for the year.

The Russell 2000 index of smaller companies rose 14.09, or 2.2 percent, to 642.65.

Bond prices mostly rose, pushing down yields. The yield on the benchmark 10-year Treasury note fell to 3.61 percent from 3.62 percent late Friday.

The dollar rose against other major currencies, while gold fell.

Crude oil fell 96 cents to settle at $78.70 per barrel on the New York Mercantile Exchange.

In stocks, AIG rose $1.01, or 4.1 percent, to $25.78. AIG reported disappointing fourth-quarter results Friday, which tempered gains in the market on the final day of trading for February.

OSI Pharmaceuticals jumped $19.23, or 51.9 percent, to $56.25. Astellas Pharma Inc. said it would take a $3.5 billion takeover bid to OSI shareholders after management rejected the offer.

SanDisk increased its first-quarter revenue forecast. Shares of the maker of flash memory cards, which are used in electronics like cameras, rose $3.48, or 11.9 percent, to $32.63.

Millipore Corp. jumped $10.49, or 11.1 percent, to $104.90 after Germany’s Merck KGaA said it would pay $6 billion to acquire the maker of biotechnology equipment.

MSCI Inc. struck a deal to acquire RiskMetrics Group Inc. for about $1.55 billion in cash and stock. The companies sell services to financial companies. MSCI fell $1.39, or 4.6 percent, to $28.59, while RiskMetrics rose $2.46, or 13.2 percent, to $21.09.

Manny Weintraub, president of Integre Advisors in New York, said investors are still trying to determine what an economic recovery will look like. In past downturns, the rebound is often more swift than investors expect. But economic reports in the past two months have signaled a more tepid rebound.

Still, Weintraub sees the buyouts as a good sign that solid companies can obtain financing a year after stocks tumbled to 12-year lows.

“It’s definitely a show of confidence,” he said.

The Commerce Department said personal spending rose 0.5 percent in January. Economists had forecast an increase of 0.4 percent. Investors saw the gain in spending as a welcome sign for the economy. However, personal income edged up 0.1 percent, below the 0.4 percent forecast by economists. It was the slowest growth in income in fourth months and could eventually hurt spending.

The spending figures lifted retailers. Macy’s Inc. rose 63 cents, or 3.3 percent, $19.78, while Tiffany & Co. rose $1.20, or 2.7 percent, to $45.59. Home Depot Inc. rose to its highest level in a year during trading. The stock finished up 23 cents, or 0.7 percent, to $31.43.

Four stocks rose for every one that fell on the New York Stock Exchange, where consolidated volume came to 3.8 billion shares compared with 4.2 billion Friday.

Britain’s FTSE 100 gained 1 percent, Germany’s DAX index jumped 2.1 percent, and France’s CAC-40 climbed 1.6 percent. Japan’s Nikkei stock average rose 0.5 percent.