Stocks closed higher as investors overcame concerns about subprime lending to spark a late-day rally.
Buying was broad-based with utilities, telecom and information technology leading the move upward. Even though the major averages finished higher, analysts were still taking a cautious tone.
"We're going through a short-term bounce," Mark Arbeter, Chief Technical Strategist at Standard & Poor's, told CNBC. "Volume, so far, on the upside has been fairly light, which is not encouraging."
"We're kind of rebounding here," Andrew Burkly, Market Strategist at Brown Brothers Harriman, told CNBC.com. "We started to get better after oil prices pulled back. We're still in this bottoming process where we saw the most intense selling last week and we're kind of testing that. People seem to be feeling a little more confident.
Technology was among the best performing sectors throughout the session. Semiconductor stocks were attracting buyers ahead of a mid-quarter update from Texas Instruments after the bell. The financials sector was lower because of subprime mortgage worries and the energy sector was weighed down by lower oil, although both sectors came off earlier lows in afternoon trading.
"The energy stocks are holding up in a somewhat down oil market, which is a positive indication for oil and oil services going forward," Byron King, senior analyst and editor with Outstanding Investments, told CNBC.com. "Halliburton announced its moving its headquarters to Dubai to be closer to the future action in the oil market and the stock went higher."
The late afternoon rally in stocks came after a session in which the major averages traded mostly sideways over concerns about the subprime mortgage industry.
"We're waiting for inflation information coming out later in the week," Barry Ritholtz, Chief Market Strategist at Ritholtz Research & Analytics, told CNBC.com. "I think the data is going to be the market mover this week. I suspect we're going to see the subprime situation get worse before it gets better. I don't think we are anywhere near seeing the bottom in housing and that's going to affect equities and fixed income."
"The market is reacting a little bit cautiously," Emanuel Balarie, Senior Market Strategist at Wisdom Financial, told CNBC.com. "There's talk about the housing market still at the forefront of investors minds. I don't think the correction is over. We might be a little more range bound for now, but I'm still looking for a 20% plus correction."
Treasury prices were higher, sending yields lower.
Shares of New Century Financial plunged after the company said all of its bank lenders had either cut off their short-term funding to the subprime lender or notified New Century of their intent to do so. Regular trading in the stock has not opened, the New York Stock Exchange said, pending news.
Countrywide Financial shares fell after the largest U.S. mortgage lender said it may still experience fluctuating earnings in the near-term due to turmoil in the U.S. subprime market, even though the company has minimal exposure to nonprime mortgages.
Merck was trading lower after a New Jersey jury awarded $20 million to an Idaho couple who claimed the drug maker's painkiller Vioxx contributed to the husband's heart attack.
Investors were cautious in spite of a slew of M&A news. The big deal of the day came from the drug sector after Dutch chemical company Akzo Nobelagreed to sell its drug unit Organon BioSciences to U.S. pharmaceutical company Schering-Plough for $14.5 billion, ending its plan to take Organon public.
"Even with all the deals and the private equity, I think there's a chance we re-test the lows in the next few weeks," John O'Donoghue, head of trading at Cowen & Company, told CNBC. "Those things were still going on in the last two weeks."
Discount retailer Dollar General said it has agreed to be acquired by affiliates of the private equity firm Kohlberg Kravis Roberts (KKR) in a deal valued at approximately $7.3 billion, including $380 million in debt.
And Dow component Procter & Gamble agreed to sell its European tissue business to Swedish company SCA for $672 million in cash.
Kuwait's Investment Dar and Adeem Investment agreed to buy a stake in Ford Motor's Aston Martin unit, Reuters reported. More details of the deal are expected later Monday, with newspapers reporting over the weekend that a group of investors led by U.K. motor racing team boss David Richard would buy a majority stake in Aston Martin for about $870 million.
Also on the merger front, Chicago real estate magnate Sam Zell wants to take newspaper company Tribuneprivate in a $13 billion deal, Barron's reported.
In the energy market, New York light crude futures fell below $60 per barrel, with warmer temperatures forecast for important U.S. heating oil markets.
Shares of Apple could be in focus after a report in a German magazine that the European Union consumer chief is concerned about songs downloaded from iTunes only working on Apple's iPod.
European Stocks Close Lower
London's FTSE-100 lower, the Frankfurt DAX and the Paris CAC-40 finished lower.
The board of U.K. drug retailer and wholesaler Alliance Boots meets today to discuss an $18.74 billion takeover offer from private equity firm Kohlberg Kravis Roberts.
Swiss state-owned telecom Swisscom is bidding $4.87 billion for Italian broadband company Fastweb. The offer of 47 euros a share is a 12% premium above Fastweb's closing price on Friday.
Looking to the economy, U.K. core producer prices, which exclude food, energy and tobacco, rose 0.5% in February, more then double the rise analysts predicted.
Asian Markets Broadly Higher
Tokyo's Nikkei 225 Average closed higher with Kyocera and other exporters rose on a weak yen, while investors bought machinery shares such as Fanuc after fourth-quarter growth data was revised upwards on an acceleration in capital spending.
Seoul shares rose to their highest close in two weeks, recouping most of the ground lost in a recent shakeout, as exporters gained on the U.S. jobs data and Japan's GDP data eased worries about the global economy.
Australian shares finished stronger after the upbeat jobs data in the U.S. eased concerns of a slowdown in the world's biggest economy, with top miner BHP Billiton.
China's main stock index edged higher, aided by positive comments by central bank governor Zhou Xiaochuan. But traders do not expect strong resistance around the 3,000 level to break any time soon.
Hong Kong stocks advanced, pacing higher Asian markets, as China Mobile rebounded after tracker funds sold the stock last week to reflect its lower weighting in the latest index reshuffle.
Singapore shares hit a one-month high driven by property stocks and banks such as DBS Group Holdings, as investor concerns about a slowdown in the U.S. economy and volatile equity markets waned.