U.S. stocks gained slightly Monday as a flurry of deal news involving companies such as American International Group Inc. spurred optimism about the economic outlook, but investors were cautious a day before the Federal Reserve's final meeting of the year.

The Dow Jones industrial average gained 20.99 points, or 0.17 percent, to close at 12,328.48. The Standard & Poor's 500 Index ended up 3.20 points, or 0.23 percent, at 1,413.04. The Nasdaq Composite Indexgained 5.50 points, or 0.23 percent, to finish at 2,442.86.

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Shares of blue-chip insurer American International Group Inc. (AIG) helped lead the Dow Jones industrial average's advance with a 0.9 percent gain after state-owned Dubai Ports World said it had agreed to sell its U.S. port operations to an AIG unit. It was the stock's biggest one-day climb in nearly a month.

Speculation that Continental Airlines Inc. (CAL) could become the target of a takeover attempt propelled the carrier's stock up 8.2 percent.

"The bias is still to the upside," said Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets in Baltimore.

"It's a liquidity issue. You have a lot of money to buy financial assets. In addition, we're dealing with the fourth-quarter and the end of the year, when most money managers are tyring to get stocks to go up — not down."

Wall Street expects the Federal Reserve to leave U.S. interest rates unchanged for the fourth straight time when its policy setters conclude their last meeting of 2006 on Tuesday. But investors are anxious to learn what the Fed will say about economic growth and inflation.

The Fed has held the fed funds rate target steady at 5.25 percent since August, when it paused after raising rates 17 times in a tightening cycle that began in June 2004.

"We've been getting some conflicting numbers about whether or not the economy is growing or slowing. So it will be nice to see what the Fed says," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

"The market wants to see the Fed saying inflation is tame and growth is moderate."

Both the Dow and the S&P 500 got major support from a jump in the shares of the nation's three biggest banks following speculation late last week that Citigroup Inc. may shed one or more units and shake up senior management.

Citigroup was the biggest advancer in both the Dow and the S&P 500, with its shares up 2 percent, or $1.03, at $52.88 on the New York Stock Exchange.

JPMorgan Chase & Co. (JPM) advanced 1.7 percent, or 79 cents, to $47.55, while Bank of America Corp. shares gained 1.7 percent, or 89 cents, to finish at $52.55, all in NYSE trading.

JPMorgan was the Dow's second-biggest advancer. Morgan Stanley raised its rating on the stock to "overweight," according to a report by MarketWatch.

AIG, up 65 cents at $71, ranked third among the Dow's biggest gainers. It also was among the top six stocks contributing the most to the S&P 500's advance.

Bank of America (BAC) topped the S&P 500's list of advancers.

In other deal news, travel reservation company Sabre Holdings, owner of the Travelocity Web site, is being pursued by multiple firms, including Silver Lake Partners and Texas Pacific Group, according to a source familiar with the situation. Sabre stock finished up 7.5 percent, or $2.11, at $30.43.

U.K. medical device maker Smith & Nephew Plc is close to buying U.S. rival Biomet Inc. , sources familiar with the situation said . Biomet shares were among the Nasdaq's biggest gainers, rising 4.1 percent, or $1.64, to $41.54.

Brazilian steelmaker CSN agreed to buy Anglo-Dutch rival Corus Group Plc for 4.9 billion pounds ($9.6 billion), topping a bid agreed to only hours early by India's Tata Steel , and boosting Corus' U.S.-listed shares by 6 percent, or $1.16, to $20.53 on the NYSE.

Volume on the NYSE was moderate, with 1.31 billion shares changing hands, below last year's daily average of 1.61 billion. On the Nasdaq, about 1.86 billion shares were traded, above last year's daily average of 1.80 billion.

Advancers outnumbered decliners on the NYSE by a ratio of about 3 to 2, while on the Nasdaq, the positive breadth was on a much narrower margin, with 1,576 stocks gaining and 1,503 shares declining.

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