The markets opened higher on news that private equity firms were injecting capital into the financial services sector. The Dow rose 41 points to 12,651 while Nasdaq added 7 points to 2378.

On the upside

Private equity firm TPG and other investors are planning to invest $5 billion into Washington Mutual (NYSE: WM), according to a Reuters report. Citigroup (NYSE: C) and Wachovia (NYSE: WB) joined the rally.

Investors continued to snap up shares of coal producers with Alpha Natural Resources (NYSE: ANR) and Consol Energy (NYSE: CNX) leading the way.

Shares of KLA-Tencor (Nasdaq: KLAC) rose after an analyst upgraded the maker of semiconductor testing equipment.

On the downside

Yahoo (Nasdaq: YHOO) insisted on an improved offer in response to a letter from Microsoft (Nasdaq: MSFT) which threatened to turn its bid for the Internet portal into a proxy fight.

JPMorgan downgraded Aruba Networks (Nasdaq: ARUN) which makes products for wireless computer networks due to the weak economy.

Shares of MGM Mirage (NYSE: MGM) fell after an analyst downgraded the hotel and casino operator due to an uncertain convention business environment in Las Vegas.

In the broad market, advancing issues outpaced decliners by a margin of more than 2 to 1 on the NYSE and by 5 to 4 on Nasdaq. The Russell 2000 which tracks small cap stocks added 3 points to 717.