Wall Street advances as M&A offsets Iraq worry

By Chuck Mikolajczak

NEW YORK (Reuters) - U.S. stocks were slightly higher on Monday, as caution caused by turmoil in Iraq was offset by a round of merger activity.

The United States is considering U.S. air strikes to help the Iraqi government fend off an Islamist insurgency, as well as possible discussions with neighboring Iran, U.S. Secretary of State John Kerry said on Monday.

"If the market really didn't back off because of (Iraq), people are concerned, they will keep watching it and unless it really implodes the market is just going to churn," said Ken Polcari, director of the NYSE floor division at O'Neil Securities in New York.

Merger activity continued to support the market. Medical device maker Medtronic Inc agreed to buy Dublin-based Covidien Plc for $42.9 billion and shift its executive headquarters to Ireland in the latest move by U.S. firms to harvest lower tax rates abroad. Medtronic shares shed 2 percent to $59.48 while Covidien jumped 23.7 percent to $89.06 as the biggest boost to the S&P 500.

"The M&A absolutely keeps on coming. It's ripe for it with rates so low, all this money on the balance sheet and companies looking to grow their businesses," said Polcari.

The New York Fed's "Empire State" general business conditions index rose to 19.28 this month, the strongest read since June 2010, while U.S. manufacturing output rose solidly in May as production increased across the board, bolstering expectations that economic growth would rebound strongly this quarter.

In addition, the National Association of Home Builders/Wells Fargo index of homebuilder confidence rose four points to 49 in June, just a point below the level that indicates favorable conditions.

The Dow Jones industrial average rose 13.49 points or 0.08 percent, to 16,789.23, the S&P 500 gained 4.66 points or 0.24 percent, to 1,940.82 and the Nasdaq Composite added 15.14 points or 0.35 percent, to 4,325.79.

Williams Companies climbed 21.2 percent to $57.19. The pipeline operator said it agreed to acquire control of Access Midstream Partners LP for $5.99 billion as the first step toward merging it with its operations. Jefferies upgraded Williams to a "buy" rating.

Level 3 Communications said it would buy Internet services provider tw telecom Inc for $40.86 per share in a cash and stock deal. Level 3 shares lost 5.5 percent to $41.66 and tw telecom gained 7 percent to $38.90.

Fusion-it Inc surged 22.7 percent to $11.39 after agreeing to be acquired by SanDisk for $1.1 billion.

(Editing by Bernadette Baum and Nick Zieminski)