The news of Valero Energy Corp.'s $8 billion takeover of oil refiner Premcor Inc. — creating the largest oil refiner in North America — reassured investors that corporate America was still willing to make large deals despite economic uncertainty.

A climb in home sales also lifted investors' spirits, with the unexpected jump illustrating that the higher interest rates by the Federal Reserve — designed to keep inflation in check — were not hurting on home purchases. The National Association of Realtors said home sales rose to an annualized rate of 6.89 million in March, up from 6.7 million in February.

"The housing sales report was big because there were a number of signs that the economy might be weakening, and this disputes that," said Ken Tower, chief market strategist for Schwab's CyberTrader. "There's still a lot of work to do to really move the market forward, but this is a good start."

The Dow Jones industrial average rose 84.76, or 0.83 percent, to 10,242.47.

Broader stock indicators also moved sharply higher. The Standard & Poor's 500 index was up 9.98, or 0.87 percent, at 1,162.10, and the Nasdaq composite index gained 18.59, or 0.96 percent, to 1,950.78.

The bond market was little changed after last week's gains, with the yield on the 10-year Treasury note holding steady at 4.25 percent from late Friday. The dollar rose against most major currencies, while gold prices fell.

Analysts noted that volume was relatively low compared to the last few weeks of heavy trading, and said some investors might prefer to sit out of the market until next week, when the Fed's next decision on interest rates is due. Wall Street is hoping the Fed will give a bullish forecast for the economy, which would continue to allow for gradual rate hikes that corporate America can easily digest.

"The real key is interest rates," said Russ Koesterich, senior portfolio manager at Barclays Global Investments in San Francisco. "We need to get back to that Goldilocks economy, where we're growing enough to keep things going but keeping inflation at bay and interest rate hikes measured. We do that, we'll see stocks improve."

Premcor surged 18.14 percent, or $10.70, to $69.70 on news of its acquisition, while Valero gained 83 cents to $75.87. The combined company would unseat Exxon Mobil Corp. as the largest refiner in North America.

The deal also consolidates refining capacity, a key concern given the runaway global demand for oil. Crude futures briefly reached $56 per barrel in early trading, but fell sharply in afternoon trading. A barrel of light crude settled at $54.57, down 82 cents on the New York Mercantile Exchange.

In other merger news, Qwest Communications International Inc. was unchanged at $3.55 after MCI Inc. said Qwest's $9.75 billion takeover bid was superior to that of Verizon Communications Inc., which is now expected to improve its $7.8 billion offer for MCI. Verizon held steady at $34.06, while MCI was down 2 cents at $26.67.

Online marketing company DoubleClick Inc. slid 45 cents to $8.12 after it announced it would be acquired by a private equity firm for $1.1 billion. The deal had been rumored for days, which sent DoubleClick's stock higher than the final offer of $8.50 per share.

SBC Communications Inc., preparing to merge with AT&T Corp., said its profits fell 53.4 percent from a year ago due to costs associated with the purchase of AT&T Wireless by Cingular. However, SBC surpassed Wall Street's earnings forecasts by a penny per share, and its stock added 12 cents to $23.32.

The Boeing Co. climbed $1.70 to $59.58 after the aircraft manufacturer announced a deal to provide Air Canada with as many as 96 Boeing 777 and 787 Dreamliner planes, a contract worth up to $6 billion.

Advancing issues outnumbered decliners by nearly 5 to 2 on the New York Stock Exchange.

The Russell 2000 index of smaller companies was up 6.91, or 1.17 percent, at 596.44.