The yield on the benchmark 10-year Treasury note was unchanged at 4.89 percent from late Friday. The dollar was mixed against other major currencies, while gold prices fell.

Oil fell sharply, though not enough to sends the major indexes higher. Oil settled down $1.48 at $53.94 per barrel on the New York Mercantile Exchange amid concerns OPEC members would increase production. Exxon Mobil Corp. fell 41 cents to $73.20, while ConocoPhillips slipped 12 cents to $64.65.

Denis Amato, chief investment officer at Ancora Advisors, said that while the buyout news Monday could give stocks a short-term boost, he believes investors haven't reconciled their hopes with reality as far as the Fed stands. "I think (the market) still needs to come to terms with the fact the Fed is probably not going to drop interest rates anytime soon."

Leading the buyout news was Merrill Lynch's plan to acquire First Republic Bank. As is typical for the company doing the acquiring, Merrill fell, ending down $2.14, or 2.3 percent, at $92.39. First Republic jumped $15.33, or 40 percent, to $53.63. Citigroup, meanwhile, was off 61 cents at $54.06.

Drug developer MDS Inc. agreed to acquire Molecular Devices Corp., which makes bioanalytical measurement systems, for $615 million. MDS rose 21 cents to $17.31, while Molecular Devices jumped $11.18, or 47 percent, to $35.06.

Bowater Inc. and Canada's Abitibi-Consolidated Inc. agreed to an all-stock deal in which Bowater shareholders would hold a 52 percent stake and make the combined company the third-largest publicly traded paper and forest products company in North America. Bowater rose $4.97, or 22.4 percent to $27.12, while Abitibi jumped 66 cents, or 25 percent, to $3.30.

"I think it's indicative that there is still a lot of liquidity sloshing around. The capitalization rates that seem to be implied aren't really great so it's kind of amazing that they're able to get the money to do it," Amato said, questioning whether a bump in the economy could cause such deals to dry up as liquidity shrinks.

In other corporate news, earnings from Verizon Communications Inc. met with a tepid response from investors although the telecommunication company's per-share earnings came in a penny ahead of Wall Street's forecast. Verizon was up 20 cents at $38.03 after reporting its fourth-quarter profit fell amid taxes and costs related to a spinoff.

Tyson Foods Inc. rose 48 cents, or 2.9 percent, to $17.17 after the company's fiscal first-quarter profit jumped 46 percent in the first quarter as the meat producer saw increased chicken sales and lower costs.

Advancing issues outpaced decliners by about 6 to 5 on the New York Stock Exchange, where volume came to 2.69 billion shares compared with 2.68 billion shares traded Friday.

The Russell 2000 index of smaller companies rose 4.96, or 0.63 percent, to 793.10.

Overseas, Japan's Nikkei stock average closed up 0.28 percent. Britain's FTSE 100 ended up 0.19 percent, Germany's DAX index finished up 0.53 percent, and France's CAC-40 was up 0.67 percent.

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