M&A activity, in addition to sparking talk about which other companies could be targeted, is positive for stocks as it indicates a general confidence in the economy.
The Dow Jones industrial average was up 46.19 points, or 0.43 percent, to finish at 10,837.32. The Standard & Poor's 500 Index was up 3.98 points, or 0.33 percent, to end at 1,210.12. The Nasdaq Composite Index was up 6.30 points, or 0.30 percent, to close at 2,089.21.
The Dow and the S&P 500 closed at their highest points for 2005.
"Retail sales helped," said Stephen Carl, principal and head of US equity trading at The Williams Capital Group LP. "They fell, but they were above consensus. Any tidbit of good news is going to fuel things."
Overall US retail sales dipped 0.3 percent in January as automobile sales fell sharply, but purchases outside the volatile car sector gained a healthy 0.6 percent, a government report showed on Tuesday.
Shares of retailers gained, with Wal-Mart Stores Inc, a Dow component, climbing 1.1 percent, or 55 cents, to $52.70. The Standard & Poor's index of retailers rose 0.68 percent.
Advances in 3M Co also helped lift blue chips, a day after the diversified manufacturer said it would boost its dividend 17 percent. The stock was up 1.6 percent, or $1.38, at $85.99. United Technologies Corp, another Dow stock, rose 1.5 percent, or $1.47, to $102.77.
Tech shares got a lift from a 4.5 percent gain in Apple Computer Inc, the maker of the iPod portable music player. The stock rose $3.78 to $88.41 on Nasdaq after brokerage Merrill Lynch raised its 12-month price target to $102 from $85. Earlier, the stock hit a fresh all-time high of $89.08.
Cable companies' shares rose following positive comments from Banc of America Securities. The brokerage firm said the cable sector should benefit from the recent spate of telecommunications consolidation.
Shares of Comcast Corp rose 3.4 percent, or $1.05, to $32.36 and the stock of Time Warner Inc gained 1.4 percent, or 25 cents, to $18.10.
Meanwhile, investors were looking ahead to Federal Reserve Chairman Alan Greenspan's testimony to Congress on Wednesday and Thursday. What Greenspan says about the US economy and monetary policy will get extra scrutiny from investors as they search for clues about the Fed's thinking about inflation and the pace of future interest-rate increases.
Overall, trading was active, with 1.53 billion shares changing hands on the New York Stock Exchange, just above the 1.46 billion daily average for last year. About 2.1 billion shares were traded on Nasdaq, above the 1.81 billion daily average last year.
Advancers outnumbered decliners on the New York Stock Exchange by 6 to 5 while decliners outnumbered advancers by about 16 to 15 on Nasdaq.