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INVESTORS BULLISH ON BIG DEALS

Associated Press

NEW YORK - Corporate deals and strong earnings have been credited with driving stocks higher this year - and Tuesday saw a bit of each.

The biggest news, that Microsoft is buying Internet telephone service Skype for $8.5 billion in cash, is another sign that cash-rich companies are starting to spend. Corporations built up a record amount of cash over the past several years, and they have started using it to purchase rivals, pay dividends and also expand. That, in turn, has led to increased confidence among money managers and other investors that stocks are going to continue to rise.

Large companies also want to put their cash stockpiles to work because they're getting minimal returns on them, said Oliver Pursche, president of Gary Goldberg Financial Services. Interest rates for short-term savings are less than 1 percent. "The crisis is behind us," he said. Companies "don't need this much cash anymore."

The Dow Jones Industrial Average rose 75.68 points, or 0.6 percent, to close at 12,760.36. The Standard & Poor's 500 index rose 10.87 points, or 0.8 percent, to 1,357.16. The Nasdaq index gained 28.64 points, or 1 percent, to 2,871.89.

Stocks have risen sharply in 2011, driven by strong earnings reports from major U.S. companies such as heavy-equipment maker Caterpillar and Apple. The S&P 500 is up 8 percent, more than it gained in five of the last 10 full calendar years.

Companies in the S&P 500 are on track to report first-quarter earnings growth of 19 percent, according to FactSet. That's far ahead of the 11 percent that analysts were forecasting at the end of 2010.

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