The telecommunications sector was shaken by news that AT&T will buy T-Mobile USA, while elsewhere on Wall Street sentiment improved as concerns over Japan’s nuclear crisis eased.

AT&T announced on Sunday that it was buying T-Mobile from Deutsche Telekom for $39bn in a deal that will create the largest wireless carrier in the US. Shares in AT&T were up 1.2 per cent to $28.26.

The news sent Sprint Nextel, the No 3 US carrier, tumbling 13.6 per cent to $4.36. Sprint was itself in talks with Deutsche Telekom to merge with T-Mobile, and this surprise deal with AT&T pulled the rug out from underneath it.

The telecoms sector as a whole had a mixed reaction to the news. Verizon Communications, the second-largest US telecoms group by revenues, was up 1.7 per cent to $36.46 but Qwest Communications International fell 3.4 per cent to $6.69. Overall, The S&P telecommunications index was down 0.2 per cent.

In the wider markets the S&P 500 closed up 1.5 per cent to 1,298.38, aided by news over the weekend that engineers had managed to cool down some of the reactors at the Fukushima nuclear power plant in Japan.

The Dow Jones Industrial Average rose 1.5 per cent to 12,036.53, up 3.6 per cent in the last three sessions, while the Nasdaq Composite gained 1.8 per cent to 2,692.09. The Vix index, a measure of expected volatility in the markets, was down 15.2 per cent in the session, although it is still up 25.7 since its mid-February lows before the turmoil began in north Africa and the Middle East.

The improving situation in Japan lifted some insurance stocks as worries eased somewhat over the extent of their liabilities. Hartford Financial Services Group was up 3.9 per cent to $26.49 while American International Group added 6 per cent to $37.03.

The gains for AIG came despite an announcement that its bill for the damage caused by the Japanese earthquake and tsunami will be at least $700m.

The KBW property casualty index was up 1.6 per cent, paring some of the 2 per cent losses last week.

Semiconductor stocks also rose as fears over supply constraints resulting from the Japan disaster receded. “Our most recent checks suggest the supply worst-case scenario likely has been averted,” wrote analysts at Citigroup.

Applied Materials was up 2.5 per cent to $15.21 while Cirrus Logic added 4.9 per cent to $20.95.

Qualcomm, the world’s largest producer of mobile-phone chips, rose 3.7 per cent to $53.63, also helped by news that Sterne Agee & Leach had raised its rating on the stock from “neutral” to “buy”.

The Philadelphia Semiconductor index was up 1.8 per cent, bouncing back from the 2 per cent loss seen last week.

The industrial sector rallied from its 1.7 per cent loss last week as Japanese tensions eased. General Electric, which helped supply the reactors to the earthquake-stricken Fukushima nuclear plant, added 2.4 per cent to $19.72 while 3M put on 2.2 per cent to $90.95.

The previous week saw heavy volatility on fears of a nuclear catastrophe in Japan. In the first three days, the S&P 500 lost 3.2 per cent and the Vix volatility index spiked up 46.4 per cent. The markets then rallied somewhat on Thursday and Friday to close only 1.9 per cent lower over the week.

Randy Warren, chief investment officer at Warren Financial said that markets had been trying to get “back to normal” on Friday but were constrained as traders worried about potential bad news over the weekend.

“When nothing major happened in Japan over the weekend, the upward momentum was able to take over and lift equities on Monday,” said Mr Warren.

Energy stocks benefited from an oil price jump in the session following the bombing of Libya over the weekend and warnings from Muammer Gaddafi, the Libyan leader, of a “long, drawn-out war”.

Schlumberger, the oilfield services company, was up 4.4 per cent to $89.72 while Marathon Oil added 4.4 per cent to $51.84. The wider markets appeared unperturbed by the rise in energy prices.

Elsewhere on Wall Street, Tiffany & Co was up 5.1 per cent to $60.22 after reporting fourth-quarter profits up 29 per cent, beating market expectations.

The jewellery group, which gets 18 per cent of its revenue from Japan, fell 9.3 per cent last week following the disaster.

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