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Traders work the floor at the New York Stock Exchange in New York, Dec. 26, 2012.EDUARDO MUNOZ/Reuters

Stocks were higher in midday trading on Tuesday, following an upbeat report on German investor confidence and optimism that markets are in the midst of a wave of dealmaking.

The S&P 500 rose to 1527, up 7 points or 0.5 per cent – marking a fresh five-year high and extending a rally that has driven the benchmark higher for seven consecutive weeks. The blue-chip Dow Jones industrial average rose 43 points or 0.3 per cent, to 14,025. In Canada, the S&P/TSX composite index rose 77 points or 0.6 per cent, to 12,764.

In Germany, investor confidence rose to its highest level since April 2010, fuelling hopes that the economic setbacks in the euro zone could be on the mend. European stocks rallied: Germany's DAX index rose 1.6 per cent and the U.K.'s FTSE 100 rose 1 per cent.

In the United States, the housing sector took a rare step back in what has been a steady stream of good news: The National Association of Home Builders reported that confidence among builders fell slightly this month to a reading of 46 – down from 47 in January and below expectations. PulteGroup Inc. fell 3.2 per cent and D.R. Horton fell 2.3 per cent.

Within the S&P 500, energy stocks, consumer staples and financials led the gains, rising 0.8 per cent each.

Reports said that Office Depot Inc. and OfficeMax Inc. are discussing a merger. OfficeMax rose 20.5 per cent, while Office Depot rose 9.2 per cent.

In Canada, telecom stocks rose 1.7 per cent, technology stocks rose 1.2 per cent, and financials and energy stocks rose 0.9 per cent each. Materials fell 0.3 per cent.

Great-West Lifeco Inc. was relatively unchanged after it agreed to buy Irish Life Group Ltd. from the Irish government for $1.75-billion.

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