NEW YORK -- U.S. stocks advanced Tuesday, sending benchmark indexes to their highest levels in five years, on increasing optimism over deal making and a report showing rising investor confidence in Germany.
Office Depot soared 9.4 percent and OfficeMax surged 21 percent as a person familiar with the matter said the companies have discussed a merger and may announce a deal as early as this week. Bank of America and Citigroup rose more than 1.3 percent as financial shares rallied. Google jumped 1.8 percent, surpassing $800 for the first time.
The Standard & Poor's 500 Index increased 0.7 percent to 1,530.94. The Dow Jones industrial average advanced 53.91 points, or 0.4 percent, to 14,035.67. Both indexes closed at their highest levels since October 2007. About 6.5 billion shares exchanged hands on U.S. exchanges, 6.5 percent above the three-month average.
German investor confidence jumped more than economists forecast in February to the highest in almost three years, data showed Tuesday, adding to signs that Europe's largest economy is rebounding.
The Chicago Board Options Exchange Volatility Index reached its lowest level since April 2007, slipping 1.2 percent to 12.31. Declines in the VIX, as the gauge of S&P 500 Index volatility is known, came before gains in the S&P 500 in 2009 and at the end of 2011.
Nine out of 10 groups in the S&P 500 advanced, with consumer-staples and energy shares climbing at least 1 percent. The KBW Bank Index added 0.6 percent, as Bank of America gained 1.3 percent to $12.19. Citigroup jumped 1.5 percent to $44.50, its highest level since May 2011, while JPMorgan Chase & Co. reached a more than four-year high after adding 1.2 percent to $49.45.
Office Depot, the second-largest office-supplies retailer, added 43 cents to $5.02 and OfficeMax rallied $2.25 to $13. The companies have discussed a stock swap that would create a single office-supply retailer to compete with Staples, said a person familiar with the matter, who asked not to be identified as talks remain private. Office Depot has explored options since September, when activist fund Starboard Value became its largest shareholder.
Staples climbed 13 percent to $14.65 for the biggest gain in the S&P 500.
Google advanced $13.96 to $806.85, the highest since the company went public in August 2004. Google is benefiting as more advertisers place promotions on its website, buoyed by the growing number of users who access the service on smartphones and tablets.
Best Buy gained 2.7 percent to $17.33 after Alan Rifkin, an analyst at Barclays, raised the retailer of electronic goods to overweight, the equivalent of buy, from equal weight.
"We believe Best Buy is taking the necessary steps to improve operations by cutting costs out and driving efficiencies," Rifkin wrote in a report Tuesday. "We are confident that management will work to defend share."
General Mills added 1.9 percent to $45.43. The maker of Cheerios and other cereals said profit would rise at a high single-digit percentage rate in fiscal 2014 and reiterated its earnings forecast for this year.
Analysts project an increase of 8 percent to $2.90 per share, according to the average of estimates compiled by Bloomberg.
Sealed Air jumped 9 percent to $21.15. The packaging manufacturer, based in Elmwood Park, N.J., posted fourth- quarter revenue of $1.98 billion, topping the $1.94 billion average estimate in a Bloomberg survey of analysts.
An index of homebuilders dropped 1.2 percent, with nine of its 11 members declining. The National Association of Home Builders/Wells Fargo builder confidence index fell to 46 from January's 47, a report from the Washington-based group showed Tuesday.
The median forecast in a Bloomberg survey of 50 economists called for a rise to 48.
PulteGroup tumbled 1.8 percent to $19.95 and D.R. Horton lost 1.6 percent to $23.29.
Humana tumbled 6.4 percent to $73.01 for the biggest drop in the S&P 500. The second-biggest private Medicare insurer said the U.S. government's preliminary Medicare Advantage payment rates were less than the company anticipated. The proposed rates also sent other insurers' shares down. UnitedHealth Group, the largest U.S. health insurance provider, fell 1.2 percent to $56.66. Cigna lost 1.1 percent to $60.43.