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Several factors driving stock markets toward new milestones

Specialist Peter Giacchi calls out prices during an

Specialist Peter Giacchi calls out prices during an initial public offering on June 18, 2014, on the New York Stock Exchange. Factors fueling investors' appetites for stocks include confidence in the economy, merger activity and stimulus efforts in Europe. Credit: AP / Richard Drew

The U.S. stock market is back to setting records.

After treading water for most of March and April, stocks are nudging deeper into record territory and are closing in on milestones with lots of zeros attached to them. The Dow Jones industrial average is within 53 points of 17,000, while the Standard & Poor's 500 is just shy of 2,000 after rising 6 percent this year.

A harsh winter in the United States that hobbled growth made investors cautious. There were also worries about the conflict in Ukraine and slowing growth in China, the world's second-biggest economy.

But now the economy appears to be back on track, and investors are rediscovering their appetite for stocks. Here are some of the factors driving the market toward new milestones:

The economy: Recent good news on manufacturing and hiring has boosted confidence in the economy. Manufacturing is expanding at a healthy pace, and the service industry continues to grow, according to surveys released by the Institute for Supply Management earlier this month. And employers added 217,000 jobs to their payrolls in May, the fourth consecutive month of solid job gains.

More jobs should put more money into consumers' pockets. That leads to greater demand and greater investment by companies, creating a virtuous circle, says Brad Sorensen, director of market and sector research for Charles Schwab.

More mergers: The market for mergers and acquisitions is heating up. Although the number of deals is marginally lower than it was at this point last year, the transactions getting done are bigger. The value of corporate deals has surged 62 percent to $798 billion this year, from $494 billion a year ago, even though the number of acquisitions is about 3 percent lower than last year, according to Dealogic.

M&A deals lift stock prices because the acquirer typically pays a premium for the company that it's buying, and if there are multiple bidders, prices are pushed even higher. The battle for Hillshire Brands, maker of Jimmy Dean sausages, is a good example. Tyson Foods won a bidding war to buy Hillshire for $8.6 billion earlier this month. The company ended up paying $63 a share for the food company about two weeks after rival poultry producer Pilgrim's Pride made an initial bid of $45 a share. Before the bidding had started, Hillshire's stock was trading at about $37.

More central bank stimulus: The latest big move came in Europe, when the European Central Bank two weeks ago cut interest rates and said it was ready to pump more money into the region's financial system.

As investors anticipated the ECB's move, a chain reaction was unleashed in the world's financial markets. "Lower rates in Europe are going to tend to drag rates in the U.S. down, and that -- other things being equal -- is going to make equities more attractive," says David Lafferty, chief market strategist at Natixis Global Asset Management.

Lower long-term interest rates in the United States should support the economic recovery by keeping mortgage rates low and encouraging home buying. These lower interest rates have had a side effect of pushing up stock prices, in the United States and elsewhere. When bond yields are so low globally, stocks look cheaper by comparison. This in turn forces investors into the stock market instead of the bond market.

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