Stocks edged higher on Monday on optimism over new merger deals and the upcoming earnings season, though continued concerns about Europe's fiscal issues and financial sector limited gains.

Hewitt Associates Inc surged 34 percent to $47.34 after Aon Corp agreed to buy the company for $4.9 billion in cash and stock, or $50 a share.

Separately, Playboy Enterprises Inc advanced 35 percent to $5.33 after Hugh Hefner proposed a deal to take the company private by buying all shares he does not currently own for $5.50 in cash.

This is a positive sign, reflecting that corporations have a slightly more positive outlook, as well as confidence in the outlook of the economy going forward, said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

But there was caution, following the S&P's best week this year and ahead of the stress tests of Europe's banks. Over the weekend, a German magazine reported that the test included a haircut on German sovereign debt under certain conditions in its worst scenario.

There's no shortage of things to worry about, and we need better news and visibility from earnings and the stress test results before we'll be propelled too much higher, Sheldon said.

The Dow Jones industrial average <.DJI> was up 11.12 points, or 0.11 percent, at 10,209.15. The Standard & Poor's 500 Index <.SPX> was up 2.14 points, or 0.20 percent, at 1,080.10.

The Nasdaq Composite Index <.IXIC> was up 16.29 points, or 0.74 percent, at 2,212.74. Semiconductor stocks helped lift the index after Jefferies & Co issued a bullish call on the sector and raised its price targets on many stocks in the group. The Philadelphia semiconductor index <.SOXX> added 1.4 percent.

Alcoa fell 1.4 percent to $10.79 ahead of its results. Analysts expect the first Dow component to report to swing to a second-quarter profit, though one that will be hit by falling aluminum prices.

For the second quarter, analysts see earnings growth of 27 percent for companies in the S&P 500, according to Thomson Reuters data, up from previous readings in the past three quarters, which hovered around 22 percent. This would also be higher than the 22.4 percent analysts were predicting at the beginning of the year.

U.S.-listed shares of BP Plc rose 5.6 percent to $35.96 a day after sources said the company was in talks with Apache Corp and other companies over potential asset sales.

Chinese data over the weekend showing the country's copper demand dropped sent Freeport McMoRan Copper & Gold Inc down 2.8 percent to $64.12.

(Editing by Chizu Nomiyama)