U.S. stocks drifted higher on Wednesday following several merger and acquisition deals, overshadowing an unexpected drop in January wholesale inventories.

Total wholesale inventories slipped 0.2 percent, versus expectations of an increase of 0.2 percent, while sales rose to their highest level since October 2008.

Abbott Laboratories agreed to buy Facet Biotech Corp for $27 a share late Tuesday, topping a failed bid from Biogen Idec Inc . Facet surged 66 percent to $26.95.

Private equity firm Apollo Management reached a deal to acquire Citigroup Inc's real estate investment division, Bloomberg reported, sending Citi up 3.9 percent to $3.97.

We've started to see a pick-up in M&A activity, and that represents a sign of confidence that chief executive officers and chief financial officers see better times ahead, said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

The Dow Jones industrial average <.DJI> was up 27.59 points, or 0.26 percent, at 10,591.67. The Standard & Poor's 500 Index <.SPX> gained 5.67 points, or 0.49 percent, at 1,146.06. The Nasdaq Composite Index <.IXIC> rose 15.29 points, or 0.65 percent, at 2,355.81.

American Eagle Outfitters Inc gained 6.6 percent to $18.28 after it posted sharply higher quarterly profit and forecast first-quarter profit that could beat expectations.

(Editing by Jeffrey Benkoe)