Wall Street shrugged off an increase in interest rates on Tuesday by the US Federal Reserve and news of a record trade deficit to edge higher by mid-afternoon. Trading was lifted by merger talk and an upbeat report on the chip sector.

The Dow Jones Industrial Average closed 0.4 per cent higher at 10,679.92, while the S&P500 edged up 0.4 per cent to 1,203.73. The S&P500 has not finished above 1,200 since mid-2001. The Nasdaq Composite rose 0.5 per cent to 2,159.81 touching its high-water mark for 2004.

The US Federal Reserve’s decision to raise interest rates by 25 basis points was widely viewed as a non-event on Wall Street.

Buoying the markets was a strong performance by semiconductor stocks following a forecast from Forrester Research that personal computer sales would almost double globally by the end of the decade thanks to robust demand in emerging markets.

Intel rose 2.7 per cent to $23.24, the best performer among the 30 components of the Dow industrials. Its rival Advanced Micro Devices climbed 1.5 per cent to 22.43. The chip sector was the best-performing group on the S&P 500, surging 2.1 per cent. The Philadelphia Semiconductor Index rose 1.5 per cent.

Meanwhile, the wave of mergers and acquisitions that has swept Wall Street in recent days continued unabated as The New York Times reported that Symantec, the security software group, was in advanced talks to buy Veritas, a rival, for more than $13bn.

Veritas shares jumped 9 per cent to $27.50, while Symantec shares fell 12.2 per cent to $29.50 on news of the deal, which would add to the tally of multibillion-dollar deals that have surfaced this month.

Other deals that have made waves in the market this month include Oracle's planned $10.3bn takeover of PeopeSoft, its business software rival, and Johnson & Johnson's planned $24bn takeover of Guidant, the cardiac stent maker.

Sprint shares rose 2 per cent to $24.96 as the telecommunications group, which is in talks over a $35bn merger with its rival Nextel, itself became the subject of takeover speculation. The Wall Street Journal reported that Verizon, another US telecoms group, had received backing from its British partner Vodafone to launch a bid for Sprint.

A Vodafone spokesman later said the company had not held any discussions with Verizon about a potential bid.

Verizon shares fell 1.6 per cent to $40.63, while Nextel shares fell 1.4 per cent to $29.57 on rumours of the potential offer, which if successful could scupper Nextel's own hopes for a merger.

Google climbed 2.4 per cent to $173.61 after the world's leading search engine said it would begin a programme to make digital copies of books from libraries at Harvard and other prestigious universities, as well as the New York Public Library, available for browsing using the company's search engine.

Electronic Arts rose 5.8 per cent to $60.92 as the video game maker revealed it had struck an exclusive five-year deal to develop games using National Football League teams, players and stadiums.

Boeing shares rose 0.3 per cent to $52.83 after the aerospace giant announced it had won a $928m contract to develop part of the ground-based component of the US military's anti-ballistic missile defence system.

Financial stocks were broadly higher, with American Express up just over 1.4 per cent to $55.79 after it announced it had reached a deal to market its credit cards with Citigroup, one of the biggest US credit card issuers. Citigroup shares rose 0.3 per cent to $46.92.

Alcoa led basic materials stocks lower as a downgrade by JP Morgan compounded concerns that the widening US trade gap could reflect a waning appetite for exports of raw materials. Shares in the world's biggest aluminium company fell 3.1 per cent to $31.30, while Georgia Pacific, the paper products group, fell 1.2 per cent to $37.22.