NEW YORK — A burst of corporate dealmaking is giving investors a shot of confidence about the economy.
Stock indexes rose more than 1 percent in light trading Monday to break a three-day slide. The Dow Jones industrial average rose 124 points for its biggest gain in more than five weeks, recouping much of what it lost last week.
Large acquisitions by Abbott Laboratories and Xerox pushed shares of drugmakers and technology companies higher, and the buying spread to other parts of the market as investors hoped that the $6 billion-plus deals could be a sign that takeover activity is finally picking up.
A resumption of corporate takeovers would represent an important milepost in the economy’s recovery, one year after the financial system nearly froze. Companies had grown so worried in the past year that they were hesitant to part with cash and often had trouble lining up financing.
A willingness by big companies to wager stock and borrow money to bulk up their business also sets off a guessing game over what the next takeover targets might be. Last week, Dell said it would acquire technology company Perot Systems for $3.9 billion, and earlier this month Kraft Foods made an overture for candymaker Cadbury for $16.7 billion.
Stocks have surged since March as investors jockeyed to stay ahead of a strengthening economy, but the pace of those gains has some analysts worried that the advance is overdone. The willingness of companies to pursue big deals helped ease some of those worries, at least for now.
“It’s encouraging to all investors when you see companies buy because . . . they’re in a more aggressive mode as opposed to being in the fetal position,” said Mark Coffelt, portfolio manager at Empiric Funds in Austin, Texas.
The Dow rose 124.17, or 1.3 percent, to 9,789.36, its biggest advance since Aug. 21. Last week, the Dow lost 155 points following lackluster reports on housing and manufacturing.
The broader Standard & Poor’s 500 index rose 18.60, or 1.8 percent, to 1,062.98, and the Nasdaq composite index rose 39.82, or 1.9 percent, to 2,130.74.
In corporate deal activity, Abbott Labs said Monday it would acquire the pharmaceutical business of Belgian chemicals maker Solvay for $6.6 billion, while Xerox Corp. agreed to buy Affiliated Computer Services for about $6.4 billion.
“It’s a sign of a return to normalcy,” said Thom as K.R. Wilson, managing director of Brinker Capital’s institutional investment group in Berwyn, Pa.
