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Merger Monday - Stocks ended higher as upbeat housing data and acquisition deals totaling around $90 billion pulled investors from the sidelines and distracted them from the Federal Reserve’s upcoming two-day meeting.

Today, the Dow Jones Industrial average closed up 56.19 or 0.5% to 11,045.28, the broader Standard & Poor’s 500 index closed up 6.06 or 0.5% to 1,250.56, and the Nasdaq composite index closed up 12.20 or 0.6% to 2,133.67.

Market breadth was positive. On the New York Stock Exchange, advancers topped decliners by a margin of five to three on volume of 1.34 billion shares. On the Nasdaq, winners beat losers by a margin of 18 to 11 as 1.41 billion shares changed hands.

Merger and acquisition deals combined with the growth in new home sales for the month May gave stocks a lift. For some time, investors were distracted from their focus and worry over the looming Federal Reserve FOMC meeting. Fed policy-makers are all but certain to raise interest rates another quarter-percentage point when they meet, but investors will be focusing on the central bank’s statement for clues to how much further rates may rise. There is even some talk in the market about a possible half-point rise.

Investors cheered data showing an unexpected increase in sales of new homes for the month of May - against an expected decline. Sales rose 4.6% to annualized rate of 1.234 million from a revised 1.18 million. Sales were running at the fastest pace since December after three straight increases. Sales are down 5.9% in the past year.

Merger Monday started with Phelps Dodge stating it would buy two major Canadian nickel miners, Inco and Falconbridge, in a $40 million deal that would create the largest mining company in North America. Shares of Phelps Dodge closed down $6.72 or 8% to $76.23, while Inco closed up $5.95 or 10% to $64.21, and Falconbridge closed up $2.50 or 5% to $51.80.

Shares of Johnson & Johnson closed down $1.11 or 1.8% to $60.21, after the company announced a $16.6 billion deal to buy the consumer products unit of Pfizer. The unit includes such well-known brands as Listerine mouthwash, Nicorette anti-smoking treatments, Rolaids antacid, Benadryl allergy medicine, Rogaine baldness treatment and the antacid Zantac. Stock of Pfizer Inc. strengthened 1.6% to $23.01.

Arcelor bowed to a sweetened $32.2 billion takeover bid from Mittal Steel. This merger will create a world steel giant three times larger than its nearest rival. Shares of Mittal Steel dropped 2.4% to $31.40. The bid values each share at $50.77, a 7% improvement on Mittal’s previous offer and a 43% premium on its original bid in January.

Shares of Warren Buffett’s Berkshire Hathaway closed down $600.00 to $91,500.00, after the billionaire said he would give most of his $44 billion fortune to the Bill & Melinda Gates Foundation and other charities. This charitable giveaway shall start in Jul this year. Shares of Boston Scientific Corp. fell 6.6% to $17.06 after the company said it was recalling some pacemakers and defibrillators from its sales force and hospital inventories because of problems that could cause battery depletion or loss of operation.

Lennar Corp slashed its 2006 profit outlook as builders weather the deeper-than-expected pullback in the U.S. housing market. The company reported second-quarter earnings that topped analyst expectations, but it also lowered its fiscal-year forecast, saying activity in its markets is softening on “speculators exiting the market and changing homebuyer sentiment.” The stock rose 2.6% at $45.68.

U.S. light crude oil for August delivery added 93 cents to settle at $71.80 a barrel on the New York Mercantile Exchange. Traders continued to eye developments in Iran and wait to see whether this year’s hurricane season will be as devastating as last summer’s.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter