Stocks rose sharply Wednesday as takeover talks revived investors’ hope that the recent tightness in credit won’t dampen mergers and acquisitions.

Wall Street, which has been angling for the Federal Reserve to mitigate the growing credit crunch by cutting the benchmark federal funds rate, has been knocked down several rungs in recent weeks by worries about lending troubles crimping economic and corporate growth. Mergers and acquisitions, especially by private equity firms, had been one of the market’s biggest drivers this year.

But Wednesday, investors were heartened by several reports about possible deals. The Wall Street Journal reported that online brokerages TD Ameritrade Holding Corp. and E-Trade Financial Corp. are said to have been in discussions about a possible deal for weeks, though they are not close to a deal. [MORE]