Wall Street set to open higher on M&A, extend rally

NEW YORK (Reuters) - U.S. stocks were poised to open modestly higher on Tuesday after the long holiday weekend, putting the S&P 500 on track to extend its seven-week winning streak on increased M&A activity and before housing market data.

The S&P 500's advance is the longest streak since January 2011, and the benchmark index is up 6.6 percent so far this year.

The strong start was fueled by legislators in Washington temporarily averting automatic spending cuts and tax hikes as well as by stronger-than-expected earnings and economic data. The Federal Reserve's stimulus policy has also been a major factor.

But further gains for the S&P 500 have been a struggle as investors look for new catalysts to lift the index, which hovers near five-year highs.

The compromise by lawmakers on across-the-board spending cuts, known as sequestration, only postponed the matter, and Democrats and Republicans have until March 1 to resolve differences or the cuts, which are predicted to damage the economy, will take effect.

The uptick in merger and acquisition activity, a sign of optimism about the outlook on Wall Street, has resulted in more than $158 billion in deals announced so far in 2013.

Last week, deals were reached for the acquisition of H.J. Heinz Co by Berkshire Hathaway and the sale by General Electric of its remaining stake in NBCUniversal to Comcast Corp .

"M&A is providing an enormous amount of enthusiasm in pockets and it is really a function of the cost of money, the cost of borrowing. It is a sign there is a shift going on in the economy that is very, very positive," said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey.

"At the same time, if you take the M&A activity out of the picture, you will see that many on the Street are expecting a pullback.

Office Depot Inc surged 30.9 percent to $6.01 in premarket trading after a person familiar with the matter said the No. 2 U.S. office supply retailer is in advanced talks to merge with smaller rival OfficeMax Inc . A deal could come as early as this week. OfficeMax shares jumped 24.4 percent to $13.37 before the opening bell while larger rival Staples Inc shot up 13.9 percent to $14.75.

Economic data on tap includes the National Association of Home Builders/Wells Fargo index on housing sales for February at 10 a.m. (1500 GMT). Economists in a Reuters survey expect a reading of 48 compared with 47 in January.

Improving housing data has been cited by analysts as one of the key factors in the stock market rally.

S&P 500 futures rose 2.9 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures gained 21 points and Nasdaq 100 futures added 7.5 points.

U.S. markets were closed on Monday for the Presidents Day holiday.

Computer maker Dell reports fourth-quarter results, expected to show earnings per share fall to $0.39 from $0.51 one year earlier. Analysts will have their first chance to question management on a buyout deal struck earlier this month by Chief Executive Michael Dell, private equity firm Silver Lake and Microsoft .

According to the Thomson Reuters data through Friday, of the 388 companies in the S&P 500 that have reported results, 69.8 percent have exceeded analysts' expectations, compared with a 62 percent average since 1994 and 65 percent over the past four quarters.

Fourth-quarter earnings for S&P 500 companies are estimated to have risen 5.6 percent, according to the data, above a 1.9 percent forecast at the start of the earnings season.

Express Scripts rose 3.9 percent to $57.75 in premarket trading after the pharmacy benefits manager posted fourth-quarter earnings.

Humana Inc slumped 9.4 percent to $70.70 before the open after the health insurer said the government's proposed 2014 payment rates for Medicare Advantage participants were lower than expected and would hurt its profit outlook.

(Reporting by Chuck Mikolajczak; Editing by Chizu Nomiyama and Kenneth Barry)