Stocks lifted by signs of vigor

Stocks soared Monday in the first trading session of the third quarter, boosted by a decline in Treasury yields, a sign of strength in manufacturing activity and a spate of buyout news.

The Dow Jones industrial average gained more than 120 points after the Institute for Supply Management’s manufacturing index came in at 56 last month, slightly higher than the market expected and indicating stronger expansion than May’s reading of 55. The report also showed a decrease in its index of prices paid, easing some of the market’s worries about inflation and the Federal Reserve’s interest rate policy.

Meanwhile, the 10-year Treasury note’s yield fell to 4.99% from 5.03% late Friday as investors flocked to the perceived safe haven of U.S. government securities amid continuing jitters about sub-prime lending.

Stock investors were also enthusiastic about new takeover activity involving such targets as Canadian telecommunications company BCE, rural wireless provider Dobson Communications and British telecommunications company Virgin Media.

“There’s favorable economic news and continuing merger talk. That’s a pretty good recipe for the market,” said Stuart Schweitzer, a markets strategist for JPMorgan Private Bank.

The Dow rose 126.81 points, or 0.9%, to 13,535.43. The Standard & Poor’s 500 index gained 16.08 points, or 1.1%, to 1,519.43, and the Nasdaq composite jumped 29.07 points, or 1.1%, to 2,632.30.

The Russell 2,000 index of smaller companies rose 11.36 points, or 1.4%, to 845.06.

Advancing issues outnumbered decliners by about 4 to 1 on the New York Stock Exchange.

Trading volume was light approaching the Fourth of July holiday Wednesday, when U.S. stock exchanges will be closed. The markets close early today.

In buyout news, BCE received a $32.6-billion offer over the weekend from a consortium led by the Ontario Teachers Pension Plan Board. The proposed deal would be the biggest Canadian takeover ever. BCE shares rose $1.66, or 4.4%, to $39.45.

That news followed AT&T;’s announcement Friday that it agreed to buy Dobson for $2.8 billion. Dobson gained $1.31, or 12%, to $12.42 on Monday, while AT&T; rose 35 cents to $41.85.

On Monday, Virgin Media confirmed that it received a buyout offer after reports that private equity firm Carlyle Group had bid more than $11 billion for the company. Virgin Media soared $4.30, or 18%, to $28.67.

Carlyle Group also made an offer for nursing home chain Manor Care for $4.9 billion, about 20% more than its market value in April when the company put itself up for sale. Manor Care shares slipped $1.19, or 1.8%, to $64.10 on Monday.

In other takeover developments, Reddy Ice Holdings, which makes and distributes packaged ice, said it agreed to be bought by a hedge fund for $681.5 million. Reddy shares climbed $1.96, or 6.9%, to $30.48.

The stock market seemed unfazed Monday by higher oil prices. Crude futures in New York initially fell but then rebounded to finish up 41 cents at $71.09 a barrel -- the first close above $71 in 10 months.

The dollar fell against most other major currencies, while gold prices climbed.

Among the day’s market highlights:

* Real estate investment trusts, beat down in recent months, advanced after brokerage UBS said the stocks might jump 21% as a group in the next 12 months. Also, Merrill Lynch upgraded office and commercial landlord Vornado Realty Trust, which gained $4.92, or 4.5%, to $114.76. Mall owner Simon Property Group rose $3.48, or 3.7%, to $96.52. AMB Property rose $2.58, or 4.8%, to $55.80.

* Blockbuster rose 15 cents, or 3.5%, to $4.46. The video-rental chain named James Keyes chairman and chief executive. He is the former chief of 7-Eleven.

* The manufacturing index’s strong reading boosted industrial stocks. Machinery maker Caterpillar climbed $2.15, or 2.7%, to $80.45. Conglomerate United Technologies rose $1.53, or 2.2%, to $72.46.

* Utility companies in the S&P; 500 gained 2.1% as the decline in Treasury yields made stocks such as utilities that pay high dividends more attractive.

* Santa Ana-based Collectors Universe soared $1.52, or 10%, to $16.81, extending a surge that began Friday after the provider of collectible-authentication services lifted its quarterly dividend from 12 cents a share to 25 cents.

* Shares of Local.com soared as much as 49% after a Reuters article said the search engine operator could be a takeover candidate, but they retreated after the company said the article had misconstrued comments by its CEO. The stock closed at $8.96, down $2.04, or 29%.

* Overseas, key stock indexes fell 0.3% in Britain, 0.6% in Germany and 0.5% in France. Japan’s main index edged up.