The Dow Jones Industrial Average jumped 100.38 points, or 0.76 percent, to close at 13,235.39, snapping a three-day losing streak. Bank of America and Home Depot led the blue-chip gainers, while Hewlett-Packard tumbled more than 3 percent.
The S&P 500 rallied 16.78 points, or 1.19 percent, to finish at 1,430.36. The Nasdaq soared 39.27 points, or 1.32 percent, to end at 3,010.60. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, dropped near 16.
All key S&P sectors finished higher, led by financials and consumer discretionary.
Stocks added to initial gains after the White House said Obama and Boehner met for 45 minutes to discuss the "fiscal cliff," but provided no additional details. Obama and Boehner spoke by phone last Friday and their advisers held discussions over the weekend. (Read More: 'Cliff' Talks Will Continue to Hold Markets Hostage)
"At least they are still talking and staying from the microphones for now," wrote Elliot Spar, market strategist at Stifel Nicolaus. "This movement on the cliff (a little away from the edge) gave the market some incentive for going up."
Late last week, House of Representatives Speaker John Boehner offered to accept a tax rate increase for America's richest, viewed as a key Republican road block to striking a deal. While Obama is yet to accept the offer, the news provided enough fuel to spark a rally Monday.
Ongoing "fiscal cliff" discussions have kept investors cautious over the last few weeks, as Democrats and Republicans attempt to thrash out a deal to resolve the looming economic difficulties. (Read More: Consumers Know of 'Fiscal Cliff,' but Do They Care?)
"Our bet is that politicians will allow us to go over the cliff and then drag us out before we drown…once the talks get dragged into January, the pressure to come up with a resolution ticks up enormously," said Bruce McCain, chief investment strategist at Key Private Bank.
While McCain expects continued volatility through the beginning of next month, he said investors should use the dips to build on sectors that are more leveraged to overseas growth.
"Industrials, basic materials, and less so things like consumer staples and utilities—the easing of monetary policy across most economies suggest that growth will strengthen somewhat from where we are right now."
Apple recovered earlier losses, rebounding from a 4 percent last week. Most recently, Citi downgraded its rating on the company to "neutral" from "buy." Meanwhile, BMO cut its price target on the company to $670 from $730 and Canaccord Genuity lowered its price target to $750 from $800. The price target cuts come even as Apple announced it sold two million iPhone 5s over its launch weekend in China.
AIG gained after the insurance giant said it may raise as much as $6.5 billion from the sale of its remaining stake in AIA.
Enzon Pharmaceuticals soared after the biotech firm said it retained Lazard as its financial adviser to review the company's options including a possible sale of the company or its corporate assets.
Clearwire tumbled after the wireless communications company agreed to sell nearly half of the company to Sprint for a sweetened $2.2 billion. Sprint currently owns slightly more than half of Clearwire.
German holding company Joh. A. Benckiser said it will acquire Caribou Coffee in a deal worth nearly $325 million. Caribou surged nearly 30 percent after being briefly halted.
On the economic front, a gauge of manufacturing in the New York state fell to minus 8.1 in December, falling for the fifth-straight month, according to the New York Federal Reserve. Economists polled by Reuters had expected a reading of minus 1.0.
Treasurys held losses after the government auctioned $35 billion in 2-year notes at a high yield of 0.245 percent. The bid-to-cover ratio was 3.59.
"If we look at industrials, they are expected to be our biggest laggard for the fourth quarter—down about 2.2 percent," said Christine Short, senior manager at S&P Capital IQ. "FedEx said it predicts a weak fourth quarter and even a weak first half of 2013."
In Europe, German Chancellor Angela Merkel warned that Europe's generous welfare system risked hurting competitiveness. In an interview with the Financial Times, she reiterated her determination to see European countries commit to structural reforms.
Meanwhile, Finland's minister for European affairs, Alexander Stubb, said the euro zone may yet need to do more to bail out indebted member states.
"We are always trying to end the bailout policy in all its forms," Stubb said in an interview with public broadcaster YLE on Saturday. However, he added: "If the situation calls for it, there might be countries that need help in some form." (Read More: Draghi—New ECB Bank Oversight Will Revive Confidence)
—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
Coming Up This Week:
TUESDAY: Current account, housing market index, 5-yr note auction, Fed's Fisher speaks; Earnings from Oracle
WEDNESDAY: MBA mortgage apps, housing starts, oil inventories, 7-yr note auction; Earnings from FedEx, General Mills, Accenture, Bed Bath & Beyond
THURSDAY: GDP, jobless claims, corporate profits, existing home sales, Philadelphia Fed survey, FHFA home price index, leading indicators, Fed balance sheet/money supply, UPS busiest day; Earnings froM CarMax, ConAgra, Darden Restaurants, Discover Financial, Rite Aid, Nike, RIMM, Micron
FRIDAY: Quadruple witching, personal income & outlays, Chicago Fed activity index, consumer sentiment, BLS state employment stats; Earnings from Walgreen
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