Takeovers sparked the biggest U.S. stock-market rally in a month and sent the Dow Jones Industrial Average to its first gain in seven days.

Travel companies climbed after Four Seasons Hotels Inc. received a $3.7 billion offer from Microsoft Corp. Chairman Bill Gates and Prince Alwaleed bin Talal. Kos Pharmaceuticals Inc., a drugmaker, and OSI Restaurant Partners Inc., the operator of the Outback Steakhouse chain, jumped on acquisition bids.

``We're seeing more takeovers because there is an enormous amount of money sloshing around the world,'' said Ken Tower, the Princeton, New Jersey-based chief market strategist at CyberTrader Inc. ``Capital is looking for higher returns and that looks favorable for equities.''

The Dow Jones Industrial Average rose 119.51, or 1 percent, to 12,105.55, snapping a losing streak that followed an all-time high on Oct. 26. Speculation that Democrats may take control of the House of Representatives and Senate from Republicans in U.S. elections tomorrow aided the rebound.

Both the Dow and the Standard & Poor's 500 Index had their biggest advance since Oct. 4. The S&P 500 added 15.48, or 1.1 percent, to 1379.78.

Cisco Systems Inc., the world's largest maker of computer- networking equipment, and XM Satellite Radio Holdings Inc., the biggest pay-radio service by number of subscribers, lifted the Nasdaq Composite Index to its best performance since Oct. 12. The Nasdaq climbed 35.16, or 1.5 percent, to 2365.95.

Strong Earnings

``The merger activity is being spurred by the fact that a lot of companies are going to show strong earnings'' and price- earnings ratios are low, said Dan Genter, who oversees $2.5 billion in assets as president of RNC Genter Capital Management in Los Angeles. ``The market is undervalued.''

There have been $1.37 trillion of mergers and acquisitions announced in the U.S. this year, a 28 percent increase from the same period in 2005, according to data compiled by Bloomberg. This year has been the most active since 2000, when $1.49 trillion of deals were struck up to this point.

The S&P 500 is valued at about 17 times its members' earnings per share for the past year, down from 26 times when the last bear market ended in October 2002. It's the first time since at least 1960 that the price-earnings ratio has fallen in a bull market, according to Birinyi Associates Inc., a money-management and research firm based in Westport, Connecticut.

Merrill Lynch & Co. strategist Richard Bernstein said today he expects the S&P 500 Index to rise 7.8 percent to 1488 during the next 12 months. Bernstein raised his 12-month forecast for the benchmark from 1349.

M&A Stocks

Four Seasons jumped $18.63, or 29 percent, to $82.50. Chairman and Chief Executive Officer Isadore Sharp favors an $82- a-share cash offer for the company. Gates is bidding through an investment company called Cascade LLC, while Prince Alwaleed bin Talal is bidding through Kingdom Hotels International. Sharp's family plans to keep a 10 percent stake.

Hilton Hotels Corp., the second-largest U.S. hotel operator, advanced 92 cents to $29.48. Hotel companies have become takeover targets as real-estate prices in the world's largest cities rise and the cost of new construction soars.

Airline stocks rallied after American Airlines parent AMR Corp. and Continental Airlines Inc. raised round-trip fares on most domestic flights. AMR added 95 cents to $28.17, while Continental, the fourth-largest U.S. carrier, rose $1.61 to $36.13. JetBlue Airways Corp. advanced 43 cents to $12.43. The eighth-largest U.S. airline said October traffic climbed 16.3 percent.

Kos Pharmaceuticals soared $26.97, or 54 percent, to $77.06. The company, which makes the only U.S.-marketed drug that exclusively elevates so-called good cholesterol levels, agreed to be bought by Abbott Laboratories for $78 a share in cash. Abbott fell 17 cents to $47.47.

OSI Restaurant

OSI Restaurant Partners rose $7.32, or 23 percent, to $39.75. The company agreed to be bought for $2.98 billion in cash by Bain Capital Partners LLC, Catterton Partners and three OSI founders. The group will pay $40 a share, or 23 percent more than OSI's closing price of $32.43 on Nov. 3.

Swift Transportation Co. gained $5.79, or 24 percent, to $29.84 after the second-largest U.S. trucking company said founder and former Chief Executive Officer Jerry Moyes offered to buy the company for $29 a share.

Among other deals, Kinross Gold Corp., Canada's third- biggest gold producer, agreed to buy rival Bema Gold Corp. for C$3.19 billion ($2.82 billion), while McKesson Corp., the biggest U.S. drug distributor, will acquire software provider Per-Se Technologies Inc. for $1.8 billion. Bema climbed 49 cents to $5.27 and Per-Se jumped $3.10 to $27.55.

Inflation Risk

Today's merger news also helped investors shrug off comments by Federal Reserve Bank of Chicago President Michael Moskow, who said the central bank may raise interest rates to reduce inflation within a ``reasonable period of time,'' reiterating a stronger stance than his colleagues.

``My current assessment is that the risk of inflation remaining too high is greater than the risk of growth being too low,'' Moskow said in a speech to business leaders in Chicago. ``Thus, some additional firming of policy may yet be necessary to bring inflation back to a range consistent with price stability in a reasonable period of time.''

Investors may have been encouraged by signs Democrats will make progress in tomorrow's midterm elections, in which 435 House and 33 Senate seats are up for grabs.

Stocks rallied after Republicans won control of the House in 1994 and pursued a strategy of opposing Democratic President Bill Clinton on the budget and other economic issues. The S&P 500 tripled from 1995 until 2000, when President George W. Bush won the presidency and Republicans retained control of the House and Senate.

XM Satellite

Almost nine stocks rose for every two that fell on the New York Stock Exchange. Some 1.53 billion shares changed hands on the Big Board, in line with the three-month daily average.

XM Satellite Radio helped pace the Nasdaq's rally, rising $1.78, or 16 percent, to $13.17. The company's net loss narrowed to 32 cents a share from 60 cents a year earlier as it posted higher-than-expected sales and lower marketing expenses. Sales rose 57 percent to $240.4 million, beating the $235.2 million average estimate of analysts.

XM Satellite rival Sirius Satellite Radio Inc. gained 26 cents to $4.02.

Cisco, the world's largest maker of computer-networking equipment, surged 91 cents to $24.68, its highest since April 2004, before reporting earnings on Nov. 8. Cisco is expected to say that excluding option costs, it earned 29 cents a share in the fiscal first quarter, according to the average estimate of analysts surveyed by Thomson Financial.

Palm Tumbles

Palm Inc. tumbled $1.17 to $14.24 after NTP Inc., a patent- licensing firm, filed a lawsuit against the maker of the Treo e- mail phone, alleging its devices infringe NTP patents.

TXU Corp. slid $4.94, or 7.8 percent, to $58.31 for the largest decline in the S&P 500 after the biggest power producer in Texas cut its 2007 earnings forecast on lower electricity prices and higher fuel costs. TXU reduced its per-share 2007 earnings forecast to $5.25 to $5.55, below an earlier estimate of about $5.75. The average estimate of 20 analysts surveyed by Thomson Financial is $5.49 for 2007.

S&P 500 shares, called Spiders, gained $1.54 to $138.08. Nasdaq-100 tracking shares, known by their QQQQ symbol, climbed 61 cents to $42.54.

S&P 500 futures expiring in December advanced 15.30 to 1383.80 on the Chicago Mercantile Exchange. Nasdaq-100 Index futures gained 23.50 to 1737.25.

The Russell 2000 Index, a benchmark for companies with a median market value of $622.6 million, gained 1.4 percent to 763.08. The Dow Jones Wilshire 5000 Total Market Index, the broadest measure of U.S. shares, added 1.2 percent to 13,807.14. Based on the advance, the value of stocks surged by $197.8 billion.