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The impact of bin Laden's death by U.S. forces on financial markets prompted a quick flurry of buying, which was viewed as an emotional response. The Dow swung 92 points from its high of the day to its low.

"His death should not have affected the markets much ... (but) just people feeling a little better about the world sometimes impacts the stock market," said Bryant Evans, investment adviser and portfolio manager at Cozad Asset Management, in Champaign, Illinois.

Energy and materials were the weakest performers. Investors pulled back from shares that have outperformed lately following declines in commodities. The S&P energy index .GSPE was down 1.3 percent.

U.S. crude prices ended lower but were off the sharp declines that immediately followed word of the al Qaeda leader's killing, and silver dipped after a recent rally.

Monday's fall followed the Dow's and Nasdaq's posting their best monthly gains since December, and analysts forecast little resistance for the S&P 500 until 1,400.

"We've seen a great stock market this year, and that shows you that the broader economy is what's important," Evans said.

Stocks also were helped by merger and acquisition announcements, which often reflect optimism about the longer-term outlook. The S&P 500 is up 30 percent since the start of September, roughly when the current rally began.

The Dow Jones industrial average .DJI was down 3.18 points, or 0.02 percent, at 12,807.36. The Standard & Poor's 500 Index .SPX was down 2.39 points, or 0.18 percent, at 1,361.22. The Nasdaq Composite Index .IXIC was down 9.46 points, or 0.33 percent, at 2,864.08.

The CBOE Volatility Index, Wall Street's fear gauge, rose 8.8 percent. The VIX index, which often moves inversely to the S&P 500, measures the cost of hedges or protection investors are willing to pay against a fall in the S&P 500.

Among the deal news, Israel-based Teva Pharmaceuticals Industries Ltd (TEVA.TA)(TEVA.O) will buy Cephalon Inc (CEPH.O) for $6.8 billion, and Arch Coal Inc (ACI.N) will acquire International Coal Group Inc (ICO.N) for $3.4 billion.

U.S.-listed shares of Teva rose 3.4 percent to $47.27, while Cephalon gained 4 percent to $80.11. Arch shares were down 2.2 percent at $33.53, but International Coal soared 30.8 percent to $14.43 and was the among the most actively traded stocks on the New York Stock Exchange.

In addition, Community Health Systems Inc (CYH.N) raised its bid for Tenet Healthcare Corp (THC.N) by $1.75 per share to $7.25.

Community Health fell 1.7 percent to $30.22, and Tenet dropped 3.5 percent to $6.69.

In other deal news, Nasdaq OMX Group (NDAQ.O) and IntercontinentalExchange Inc (ICE.N) took their $11 billion takeover bid for NYSE Euronext (NYX.N) directly to the Big Board's shareholders with a tender offer. NYSE shares were up 0.8 percent at $40.40, while Nasdaq shares were up 0.07 percent at $27.14.

About 7.35 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, below last year's estimated daily average of 8.47 billion.

Declining stocks outnumbered advancing ones on the NYSE by a ratio of 3 to 2, while on the Nasdaq, about 9 stocks declined for every 4 that rose.

(Reporting by Caroline Valetkevitch; Editing by Kenneth Barry)

Teva's (TEVA.TA) (TEVA.O) $81.50-a-share deal is a nearly 12 percent premium over Valeant's (VRX.TO) $73-a-share offer, which Valeant made public on March 29.

Israel-based Teva is best known as the world's largest maker of generic drugs, but it also has a significant business selling brand medicines that have patent protection. Adding Cephalon's pain, sleep and cancer drugs will help Teva reduce its dependence on its big-selling Copaxone multiple sclerosis medicine, which faces increasing competitive threats.

The acquisition "down the road will reduce the impact of Copaxone on Teva," said Natali Gotlieb, an analyst at the IBI Investment House. "Cephalon has a very interesting pipeline and the price seems fair."

The deal is not conditioned on financing and is expected to be completed in the third quarter, the companies said. Teva expects the deal to immediately add to its non-GAAP earnings per share.

The transaction is worth $6.8 billion, including the conversion of Cephalon's convertible debentures and stock options.

Cephalon had urged shareholders to rebuff Valeant's overtures, and Cephalon shares had been trading above the Canadian company's offer.

Cephalon shares rose 5.8 percent to $81.52 in premarket trading. Teva shares rose 3 percent after the announcement.

Cephalon Chief Executive Officer Kevin Buchi said the deal with Teva followed a review of a wide range of strategic options.

"There's always the possibility someone else could come in, but I think the likelihood of Valeant offering a higher bid is low, judging from the language they've used in the past," said Jon LeCroy, an analyst at Hapoalim Securities. "I don't see them coming back. Right now it looks like the Teva bid will stick."

Teva has steadily built its business through acquisitions, including significant deals for generic drugmakers Barr Pharmaceuticals and Ratiopharm.

"They (Teva) paid too much when they bought Ratiopharm and I think they might be paying too much now but it makes sense to diversify away from the generic business," said Gilad Alper, an analyst at the Meitav brokerage. "The profitability level is similar to Teva's, which is good."

Credit Suisse Securities LLC is serving as Teva's financial adviser, while Deutsche Bank Securities and BofA Merrill Lynch are advising Cephalon.

(Reporting by Lewis Krauskopf; additional reporting by Tova Cohen in Tel Aviv and Toni Clarke in Boston, Editing by Lisa Von Ahn, John Wallace, editing by Dave Zimmerman)

Chrysler also gave further details on its refinancing of $7.5 billion of loans owed to the United States and Canada stemming from its 2009 bailout.

Its first-quarter net income came to $116 million, compared with a net loss of $197 million a year earlier.

Revenue shot up 35 percent to $13.1 billion, spurred by the company's 16 new and revamped models, including the Jeep Grand Cherokee and the Chrysler 300. The company also started selling the Fiat 500 small car during the quarter.

The company reported an operating profit of $477 million in the first quarter, compared with $143 million a year earlier.

Chrysler also reiterated its full-year outlook, saying it aimed to post revenues of $55 billion and net income between $200 million and $500 million.

Sergio Marchionne, the chief executive of Chrysler and Fiat, has said the company would need to post "a couple" quarters of net income before an initial public offering, which could come this year or next.

Until now, Chrysler has posted a string of operating profits, but high interest rates on loans the company owes to the United States and Canada undercut its ability to post net income.

The company also said Monday that it would borrow $3.5 billion in a senior secured six-year term loan and $2.5 billion in secured bonds that will have eight- and 10-year maturities.

Chrysler plans to use the term loan, bonds and $1.27 billion in cash from Fiat to refinance its government loans during the second quarter.

The company also confirmed plans to secure a $1.5 billion five-year revolving credit facility, as sources previously told Reuters.

In the past two years, the company overhauled its vehicle lineup and recently spurred renewed buzz for its flagship brand with a Super Bowl ad, bearing the tagline "Imported from Detroit."

A refinancing deal would bolster Chrysler's balance sheet, making it more attractive in an IPO. The deal also paves the way for Fiat to take majority control of the U.S. automaker.

Fiat currently has a 30 percent stake. Marchionne has said Fiat plans to exercise an option to buy a 16 percent stake in Chrysler for $1.27 billion during the second quarter, which will be used to refinance Chrysler's government debt.

Fiat expects to push its stake in Chrysler to 51 percent later this year, when Chrysler is expected to meet its last performance test set by the U.S. Treasury in 2009.

(Reporting by Deepa Seetharaman; Editing by Derek Caney, Dave Zimmerman)

By 0749 GMT, futures for the S&P 500, Dow Jones futures and Nasdaq futures were up 0.7 to 0.8 percent.

U.S. Treasury yields and the dollar rose, while safe-haven gold slipped from record highs, reflecting a perception of easing geopolitical risks after U.S. President Barack Obama said late on Sunday that bin Laden had been killed in a shootout in a compound in Abbotabad north of Islamabad.

Economic data scheduled for release is seen providing further direction for equities, with the Institute of Management Supply (ISM)'s manufacturing PMI numbers for April, due out at 1400 GMT, expected to drop to 59.9 from 61.2 a month earlier.

Stocks on Wall Street rose on Friday, with the Dow .DJI and the Nasdaq .IXIC recording their best monthly performance since December on the back of upbeat corporate results.

In company news, final buyout bids for Warner Music Group (WMG.N) are due on Monday and the company could be sold by the end of the week in a deal valued at over $3 billion, according to a person familiar with the matter.

Warren Buffett still believes his reputation is intact after his former top lieutenant David Sokol pitched for a takeover of Lubrizol Corp (LZ.N) after Sokol had purchased shares in the chemicals company.

Danish food ingredients and enzymes maker Danisco's (DCO.CO) board of directors unanimously recommended that Danisco shareholders accept U.S. chemicals group DuPont's (DD.N) improved offer for Danisco.

French retail and luxury giant PPR (PRTP.PA) said it would buy California-based Volcom Inc (VLCM.O), which specializes in youth-oriented sports clothes, for $607.5 million in cash.

U.S. agribusiness and trading conglomerate Cargill CARG.UL won EU regulatory approval on Monday to purchase a German chocolate maker to expand its cocoa and chocolate business in Europe.

In Europe, the pan-European FTSEurofirst 300 .FTEU3 index rose in early trade, though volumes were expected to be thin throughout the session as Britain's markets were closed for a holiday.

(Reporting by Harpreet Bhal; Editing by Lincoln Feast)