Stock prices climbed Tuesday as investors drew confidence from a smaller-than-expected drop in factory orders and a continuing stream of acquisition activity.
The market was relieved to hear from the Commerce Department that U.S. factories saw demand fall in May by only 0.5%. Most analysts had predicted a decline of more than 1%.
Takeover news gave the market an extra boost as Kraft Foods said it offered $7.2 billion to buy the cookie and cereal division of French food company Groupe Danone and a major Wendy's International shareholder said he was considering buying the hamburger chain. In addition, Teck Cominco bid $3.9 billion for another Canadian mining company, Aur Resources, whose shares soared 31% in Toronto.
The acquisition activity helped the stock market extend Monday's steep gains, but most analysts weren't taking this week's movements too seriously because trading volumes were low. The stock market closed early Tuesday because of the Fourth of July holiday today.
"Historically, the two days leading up to the July 4 holiday have been positive for the equity markets," said Michael Sheldon, chief market strategist at Spencer Clarke. But the few days after July 4 are often negative, he said.
The Dow Jones industrial average rose 41.87 points, or 0.3%, to 13,577.30, adding to Monday's 126.81-point gain.
The Standard & Poor's 500 index gained 5.44 points, or 0.4%, to 1,524.87, and the Nasdaq composite index gained 12.65 points, or 0.5%, to 2,644.95.
The Russell 2,000 index of smaller companies rose 3.14 points, or 0.4%, to 848.20.
Advancing issues outnumbered decliners by about 5 to 3 on the New York Stock Exchange, where volume totaled 764.3 million shares, compared with 1.38 billion shares during Monday's regular-length session.
Bond yields rose on the better-than-anticipated factory orders data. The yield on the benchmark 10-year Treasury note climbed to 5.04% from 4.99% late Monday.
Investors shrugged off the National Assn. of Realtors' index for pending sales of existing homes, which declined in May for a third straight month.
Kraft fell 87 cents to $34.66 after saying it made an offer to buy such European brands as Petit Dejeuner and Tuc from Danone, which said its board was considering the bid on an exclusive basis. Danone stock rose 1.3% in Paris. Its U.S.-traded shares fell 20 cents, or 1.2%, to $16.65.
Wendy's climbed $1, or 2.7%, to $38.39 after billionaire investor Nelson Peltz said in a letter to Wendy's chairman that his investment firm, which owns fast-food chain Arby's, would be a "natural, strategic buyer" for Wendy's. Peltz said Wendy's was blocking him from making a bid.
In commodity markets, oil prices edged up and gold prices slipped. Crude futures rose 32 cents to $71.41 on the New York Mercantile Exchange. Though the average U.S. retail price of a gallon of gasoline has fallen below $3, crude futures have been trading at 10-month highs.
The dollar gained against most other major currencies, except the British pound, which has strengthened to 26-year highs versus the U.S. currency.
In other market highlights:
* Airline stocks surged after Continental Airlines reported stronger-than-expected growth in June unit revenue. Continental soared $3.75, or 11%, to $37.62. American Airlines parent AMR rose $1.30, or 4.8%, to $28.38, and US Airways Group jumped $2.16, or 7%, to $32.86.
* Caterpillar, one of the 30 Dow components, declined after being downgraded by a UBS analyst. The heavy-machinery maker, which Monday was the Dow's biggest gainer, was its biggest loser Tuesday, falling $2.46, or 3.1%, to $77.99.
* Ford Motor fell 22 cents, or 2.3%, to $9.42. The automaker said late Monday it might take a pretax charge of $1.47 billion as part of an effort to convert some of its debt into equity.
* Apple climbed $5.91, or 4.9%, to $127.17. A Goldman Sachs analyst estimated shoppers took home 700,000 iPhones over the weekend, twice his initial projection, and a research firm calculated the iPhone's production costs at about half its selling price.
* Telecom company ShoreTel surged $2.65, or 28%, to $12.15 in the stock's first day of trading.
* Movie Gallery plunged $1.23, or 65%, to 66 cents after the company said it had defaulted on its credit line because it no longer complied with provisions of the debt. The company also said it was considering a sale.
* U.S.-traded shares of China Sunergy plunged $2.69, or 19%, to $11.28 after the Chinese solar cell maker said tight supplies of a raw material hurt its second-quarter results.
* Overseas, key stock indexes jumped 0.7% in Britain, 1.2% in Germany and 0.7% in France. Japan's Nikkei index edged up.