Stocks closed broadly higher as expectations of a Fed rate cut offset concerns about the dollar hitting new lows and oil reaching new highs.
The Dow Jones Industrial Average, Standard & Poor's 500 Index and the tech-fueled Nasdaq all posted gains amid a strong belief that the Federal Reserve will knock down short-term interest rates a quarter point Wednesday.
"The Fed meeting is going to set the tone for the rest of the week," said Ed Vallar, director of investments at GM Advisory Group. "Everyone's looking for 25-basis-point cut. That will probably give some underlying strength to the market."
Speculation about the Fed rate cut was bad news for the dollar, which fell to record lows against the euro and a basket of other currencies.
Another round of earnings reports provided encouragement that the fallout from the subprime crisis wasn't widespread enough to cause a major market meltdown, but analysts worried that rising commodity prices and a sagging dollar would eventually take their toll.
"The market is going to crack wide open, but it's hard to say when," said Martin Weiss, president of Weiss Research Group. "As time goes by the weakness in the economy seems to be spreading to more and more sectors. The stock market overall is generally ignoring it and it cannot afford to do that much longer."
Oil Hits Another Record
New York light, sweet crudehit another record as it approached $94 a barrel.
ExxonMobil and other leading energy producers reaped the most benefit from the surge in oil prices, which were attributed to a brief production halt in Mexico and continuing tensions in the Mideast.
Gold, up 24 percent in the past 10 weeks, soared to its highest level in 28 years and took aim at $800 an ounce.
"The market is in a bull run. The consensus here is that gold could reach $800 in a short term and that's motivating the market higher. Also the risk for a U.S. rate cut is feeding the trend," said Frederic Panizzutti, analyst at MKS Finance.
Several companies set a positive tone early on with before-the-bell results that beat expectations.
Dow component Verizon narrowly beat estimates. The second-biggest US phone company said profit fell but revenue grew, with third-quarter earnings per share of 63 cents, a penny above forecasts. Shares posted a modest gain.
Northwest, the No. 5 U.S. airline, reported a third-quarter profit Monday, compared with a year-ago loss, sending shares up 5 percent.
Kellogg's Strong Results
Kellogg said third-quarter earnings rose 9 percent, due in part to stronger international sales, and raised its guidance for the full year. The company's performance beat the average estimate of analysts polled by Thomson Financial by 3 cents per share, but shares lost 3.4 percent in early trading.
Ashland Oil , a maker of chemicals and motor oil, said its fiscal fourth-quarter profit fell, hurt by weak conditions in the North American building and construction markets, coupled with a difficult environment in the transportation markets. Shares dropped 2.4 percent at the open.
Health insurer Humana posted sharply higher quarterly profit of $1.78 per share Monday, helped by its health plans for both Medicare recipients and employers. Shares gained 6.4 percent.
UBS reported earnings Monday and said that it was facing more writedowns because of subprime issues despite a positive start to the fourth quarter.
Chiquita shares surged nearly 8 percent after the company announced a restructuring plan in which it will cut management jobs and close facilities to generate annual cost savings of $60 million to $80 million.
Meanwhile, Merrill Lynch shares posted a gain as the market awaited the resignation of Stan O'Neal, who was expected to step down.
Sources close to the firm told CNBC's Charles Gasparino the board is leaning toward offering the CEO job to Larry Fink, the current CEO of BlackRock . Other internal candidates include co-president Greg Fleming and private client chief Robert McCann, the favorite of the firm's massive brokerage unit.
There were no economic reports due Monday for investors to weigh. Tuesday will bring the consumer confidence index.
-- Reuters contributed to this report.