Wall Street soared Monday in the first day of trading for the third quarter, boosted by a decline in Treasury yields, a rise in June 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 June manufacturing index came in at 56.0, slightly higher than the market expected and indicating stronger expansion than May`s reading of 55.0. The report also showed a decrease in its prices paid index, suggesting inflation pressures lifted a bit last month and easing some of the market`s worries about the Federal Reserve`s interest rate policy.

As inflation concerns lessened, the 10-year Treasury note`s yield fell below 5 percent from 5.03 percent late Friday, dampened additionally by investors flocking to the safe-haven assets amid ongoing jitters about subprime lending. In mid-June, Bear Stearns & Cos. had to bail out a hedge fund with investments tied to subprime mortgages.

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

"There`s favorable economic news and continuing merger talk. That`s a pretty good recipe for the market," said Stuart Schweitzer, managing director and global markets strategist for JPMorgan Private Bank. He added, though, that the market has been seesawing in recent weeks and trading volumes are light, so the market`s gain should not be interpreted as a turnaround just yet.

"I think the movie`s going to end well this year, but there are still going to be some scenes where we`ll have to take our eyes away from the screen," Schweitzer said, pointing to persistent sluggishness in the housing market and nervousness over credit problems.

According to preliminary calculations, the Dow rose 126.81, or 0.95 percent, to 13,535.43.

Broader stock indicators also rose. The Standard & Poor`s 500 index gained 16.08, or 1.07 percent, at 1,519.43, and the Nasdaq composite index jumped 29.07, or 1.12 percent, at 2,632.30