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Talk of more corporate deals sends stocks higher

NEW YORK (AP) -- Talk of more deal-making is sending stock prices higher Tuesday, setting the market up to continue a seven-week rally.

Reports that retailers Office Depot and OfficeMax are discussing a merger come after several big corporate deals were announced in recent weeks. Some investors are betting that more deals could be on the way as buyers pay premium prices for publicly traded companies.

The Dow Jones industrial average rose 49 points to 14,031 shortly after 1 p.m. EST. U.S. markets were closed Monday for the Presidents' Day holiday.

The gains were widely shared, if slight. Eight of the 10 industry groups tracked by the Standard & Poor's 500 index inched higher, led by consumer staples. Two stocks rose for every one that fell on the New York Stock Exchange.

The S&P 500 was up eight points at 1,528. The technology-heavy Nasdaq composite index was up 12 points at 3,204. Google crossed $800 for the first time.

“It seems that investors are more comfortable with taking risk right now,” said Jack Ablin, chief investment officer at BMO Private Bank in Chicago. That's despite the $1.2 trillion in automatic federal spending cuts that are scheduled to start March 1 unless Congress and the White House find a way to avoid them. Congress returns from vacation next week.

Previous budget battles in Washington have rattled financial markets. But this time out, many investors seem unfazed by the prospect that Congress won't stop the “sequester” from kicking in. One reason is that the cuts are spread across the board for a decade, instead of all at once.

“I think investors are actually comforted by it,” Ablin said. “It's not ideal. But if Congress can't do it when left to their own devices, this is the next best thing.”

Markets were also higher in Europe following news that the German economy is picking up steam. Indexes rose more than 1 percent in Germany and France.

Stocks of office supplies stores jumped following a report in The Wall Street Journal that OfficeMax and Office Depot were considering a deal to combine, which would result in big cost savings. The paper said an announcement could come as early as this week.

OfficeMax soared $2.14 to $12.89, a gain of 20 percent, and Office Depot shot up 41 cents to an even $5, a gain of 18 percent. Staples also rose as investors anticipated that more mergers could be on the way for companies that sell office supplies.

Analysts cautioned that antitrust regulators may block mergers in the office supply business. Staples, for instance, tried to buy Office Depot in 1997, but was stopped by the Federal Trade Commission.

The news follows a recent wave of big corporate deals involving household names Heinz and Dell.

Health insurers fell after the release of preliminary government data that suggests rate cuts to Medicare Advantage plans for next year will be steeper than many had anticipated.

The two largest Medicare Advantage providers, Humana and UnitedHealth, sank. Humana had the biggest loss in the S&P 500, dropping $5.46 to $72.54, a loss of 7 percent. UnitedHealth fell 98 cents to $56.34.

The government says it expects costs per person for Medicare Advantage plans to fall more than 2 percent in 2014. The government uses this figure as a benchmark to determine payments for these privately run versions of the government's health care program for the elderly and disabled.

In the market for U.S. government bonds, the yield on the 10-year Treasury traded at an even 2 percent, unchanged from late Friday.

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