With a deal announced in the energy sector and talks among online brokerages and airlines, companies' appetites for mergers and acquisitions remained healthy, showing corporate America's confidence in the economy.

Investors also seemed to have more confidence in the Federal Reserve's ability to balance economic growth with rising prices, keeping both inflation and the specter of an economic slowdown in check. And finally, with the major indexes well off their 2005 highs, investors saw a chance to find bargains.

"I think you've got a sense of optimism out there we haven't seen in a while," said Bill Groenveld, head trader for vFinance Investments. "It's not enough to make a big push higher, but just enough to start a slow, sustained climb. I think there's faith in the Fed to manage things, and earnings growth has been good. So you're seeing folks creep back into the market."

The Dow Jones industrial average rose 38.94, or 0.38 percent, to 10,384.34.

Broader stock indicators also made gains. The Standard & Poor's 500 index added 7.49, or 0.64 percent, to 1,178.84, and the Nasdaq composite index gained 12.32, or 0.63 percent, to 1,979.67.

Oil prices surged past $52 per barrel as concerns about summer gasoline demand continued to plague the market. A barrel of light crude was quoted at $52.03, up $1.07, on the New York Mercantile Exchange.

The bond market moved lower as investors anticipated a larger surge in supply from a Treasury auction later in the week. The yield on the 10-year Treasury note rose to 4.29 percent from 4.26 percent late Friday. The dollar was mixed against most major currencies, while gold prices also rose.

The move in the bond market also signaled movement of capital from bonds back into stocks. The major indexes have held onto their recent gains, with very little of the frenzied selling that marked April's trading. However, volume remained light and some analysts and traders felt investors remained very tentative. And even bullish analysts agreed that the market will remain sensitive to bad news and will send stocks lower at the first sign of negativity.

"With all the questions out there, nobody sees a real reason to stick their neck out," said Mike Viracola, managing director and co-head of equities at Adams Harkness in Boston. "And with nobody out there making bets, the path of least resistance for this market is down."

In merger news, Cinergy Corp. climbed $1.94 to $42.32 after it agreed to be acquired by Duke Energy Corp. for $9 billion, combining two of the biggest players in electricity and natural gas transmission. The combined company will serve 5.4 million retail customers and have annual revenues of about $27 billion. Duke Energy lost 54 cents to $28.82.

The New York Times and The Wall Street Journal reported that E-Trade Financial Corp. has made an unsolicited $5.5 billion takeover bid for rival online discount broker Ameritrade Holding Corp. E-Trade rose 77 cents to $12.70, while Ameritrade surged $2.11, or 18.7 percent, to $13.42.

America West Holdings Corp. is closer to a deal to buy bankrupt airline US Airways Group Inc., the Journal reported. The carriers are hoping to have an agreement in place before America West's annual shareholder meeting May 17, the Journal said. America West lost 8 cents to $4.34.

Dow industrial McDonald's Corp. added 74 cents to $30.12 after reporting strong domestic sales in April, offsetting lagging demand in Europe.

Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange, where preliminary consolidated volume came to 1.84 billion shares, compared with 1.73 billion on Friday.

The Russell 2000 index of smaller companies was up 6.40, or 1.07 percent, at 602.92.