 "M&A deals lift Wall Street shares near record highs")
Office Depot Inc surged 9.4% to $5.02 after a person familiar with the matter said the No. 2 US office supply retailer was in advanced talks to merge with smaller rival OfficeMax Inc, which jumped more than 20%.
News of the potential move came just days after Berkshire Hathaway and a partner agreed to acquire H J Heinz Co for $23 billion, and following a revised $20 billion takeover of Mexican brewer Grupo Modelo by Anheuser-Busch InBev.
Deal activity has helped equities resist a pullback as investors use dips in stocks as buying opportunities. The S&P is up about 7% so far in 2013 and has climbed for the past seven weeks in its longest weekly winning streak since January 2011, though most of the weekly gains have been slim.
The Dow industrials closed 0.9% away from their record high while S&P 500 was 2.2% off its peak.
"Deals are good for the market," said Frank Lesh, a futures analyst and broker at FuturePath Trading LLC in Chicago. "The fact that they're being done is a positive."
More than $158 billion in deals has been announced so far in 2013, more than double the activity in the same period last year and accounting for 57% of global deal volumes, according to Thomson Reuters Deals Intelligence.
The Dow Jones industrial average gained 53.91 points, or 0.39%, to 14,035.67. The Standard & Poor's 500 Index gained 11.15 points, or 0.73%, to 1,530.94. The Nasdaq Composite Index gained 21.56 points, or 0.68%, to 3,213.59.
Other stocks in the office supplies sector also rose. Larger rival Staples Inc shot up 13.1% to $14.65 as the best performer on the S&P 500.
"Equity investors have to be encouraged by M&A since, if the number crunchers are offering large premiums, that shows how much value is still in the market," said Mike Gibbs, co-head of the equity advisory group at Raymond James in Memphis, Tennessee.
On the downside, health insurance stocks tumbled, led by a 6.4% drop in Humana Inc to $73.01. The company said the government's proposed 2014 payment rates for Medicare Advantage participants were lower than expected and would hurt its profit outlook.
UnitedHealth Group lost 1.2% to $56.66. The Morgan Stanley healthcare payor index dropped 1.2%.
Wall Street's strong start to the year was fueled by better-than-expected corporate earnings, as well as a compromise in Washington that temporarily averted automatic spending cuts and tax hikes that are predicted to damage the economy.
The compromise on across-the-board spending cuts postponed the matter until March 1, at which point the cuts take effect. Ahead of the debate over the cuts, known as sequestration, further gains for stocks may be difficult to come by.
Some investors say the debate could be the catalyst for a long anticipated sell-off after the market's recent strong run.
Carter Worth, a technical analyst at Oppenheimer, pointed to the "especially complacent action of the past six weeks," noting that, as of Friday, stocks have gone 33 sessions without a dip of more than 1.5%.
"We would be selling aggressively into the market's current strength," he said in a research note.
Economic data showed the NAHB/Wells Fargo Housing Market index unexpectedly edged down to 46 in February from 47 in the prior month as builders faced higher material costs.
According to the Thomson Reuters data through Monday morning, of the 391 companies in the S&P 500 that have reported results, 70.1% have exceeded analysts' expectations, compared with a 62% average since 1994 and 65% over the past four quarters.
Fourth-quarter earnings for S&P 500 companies have risen 5.6%, according to the data, above a 1.9% forecast at the start of the earnings season.
Express Scripts rose 2.5% to $56.98 after the pharmacy benefits manager posted fourth-quarter earnings.
About two stocks rose for everyone that fell on the New York Stock Exchange and Nasdaq. About 6.48 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, in line with the daily average so far this year.