With an acquisition of EDS (NYSE: EDS) in the works and quarterly earnings coming out on Thursday, HP (NYSE: HPQ) promises to be the biggest newsmaker in the technology sector this week.

Both companies confirmed late today that they are in "advanced discussions" on a "possible business combination," but that there is no guarantee a deal can be reached.

Traders, however, seemed to place high odds that a deal will be reached. HP shares were trading near $50 when reports of a possible deal first surfaced; they ended the day more than $3 lower just an hour later. EDS shares shot up from $19 to more than $24 in the final hour of trading.

A deal would give HP the services presence to make it a stronger competitor to IBM (NYSE: IBM), which came off a new all-time high in the last hour of trading on the news.

HP will also report its quarterly earnings Thursday night. Analysts are looking for 9.4% sales growth to $27.94 billion and earnings of 84 cents a share.

Stocks rose during the day, led by strength in the tech sector, as oil finally declined after seven days of sharp gains. Research in Motion (NASDAQ: RIMM) led with a 7% gain on a new BlackBerry.

Applied Materials (NASDAQ: AMAT) rose 3% ahead of its earnings due out after the close on Tuesday.

Yahoo (NASDAQ: YHOO) and Sprint (NYSE: S) lost ground as Merger Monday passed without a deal for either company.

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The Nasdaq surged 43 to 2488, the S&P gained 15 to 1403, and the Dow rose 130 to 12,876. Volume declined to 3.37 billion shares on the NYSE, and rose to 1.79 billion on the Nasdaq. Advancers led by a 23-9 margin on the NYSE, and 20-8 on the Nasdaq. Upside volume was 73% on the NYSE, and 79% on the Nasdaq. New highs-new lows were 69-71 on the NYSE, and 65-96 on the Nasdaq.