The possible acquisition of troubled mortgage lender Countrywide by Bank of America lifted the markets to a higher close with the Dow soaring 118 points to 12,853. Nasdaq climbed 14 points to 2489.

On the upside

Bank of America (NYSE: BAC) engaged in discussions with Countrywide Financial (NYSE: CFC) to explore the possibility of purchasing the troubled mortgage lender.

A Wall Street Journal Online article reported that Delta Air Lines (NYSE: DAL) may research the option of merging with rivals UAL (NYSE: UAUA) or Northwest (NYSE: NWA).

Strong sales lifted same-store sales for Eddie Bauer (Nasdaq: EBHI).

On the downside

While The Children's Place Retail Stores (Nasdaq: PLCE) reported higher same-store sales for December, the gain was below analyst expectations.

Raymond James analyst Samantha Panella downgraded AnnTaylor Stores (NYSE: ANN) after the women's apparel retailer blamed a sharp drop in same-store sales for lowering its full year outlook.

Gap (NYSE: GPS) reported that December same store sales fell more than analysts expected.

In the broad market, advancing issues outpaced decliners by a margin of more than 2 to 1 on the NYSE and by nearly 3 to 2 on Nasdaq. The Russell 2000 which tracks small cap stocks gained 8 points to 720.