Since Citigroup's deal to sell a 4.9 percent stake to the Abu Dhabi sovereign fund last month, analysts have speculated that there could be more investors aiming to put money in financial companies bruised by the fallout from the subprime mortgage crisis.
Citigroup's board is expected to meet this week to choose a successor for former CEO Charles Prince, who stepped down last month amid mounting subprime losses. Vikram Pandit, head of Investment Banking unit, is considered by many the favorite to the job. Citi was the biggest gainer of Dow components.
Meanwhile, Bank of Americais winding down a $12 billion money-market type fund that's tailored toward institutional investors, sending shares higher.
MBIA shares surged after it said buyout firm Warburg Pincusagreed to invest $1 billion in the world's biggest bond insurance, bolstering its finances amid concerns about its liquidity.
Barron's newspaper reported Sunday, citing analysts, that JPMorgan shares were undervalued. Separately, the Investment Corporation of Dubai, an $81.7 billion holding company for some of the emirate's biggest businesses, said Monday it had held talks with JPMorgan Chase on ways to cooperate.
A report showing an unexpected rise in October pending existing home sales also helped to boost stocks. The Dow Jones home construction index jumped 3.6 percent.
Shares of McDonald's climbed to an all-time high, after the company said sales at restaurants open at least 13 months rose 8.2 percent in November.
On the Nasdaq, Cisco Systems shares were among the biggest gainers, up 1.4 percent at $27.84 after top U.S. phone company AT&T said it was buying core routers from Cisco to upgrade its Internet backbone network.
It was a big day for pharmaceutical news.
Shares of MGI Pharma zoomed 20 percent on news that Japanese drug maker Eisai said it would buy MGI for $3.9 billion cash to strengthen its cancer treatment pipeline, while Britain's Reckitt Benckiser said it would be drugs group Adams for 460 a share or $2.3 billion in total.
Pharmaceutical company Amgen moved lower after downgrades from Merrill Lynch and Bernstein, while Celgene was at the top of Nasdaq losers as results for the company's drug Revlimid, which treats blood cancer, disappointed analysts.
And AstraZeneca posted gains, after regulators gave a clean bill of health to the company's Prilosec and Nexium, saying they found no evidence of an increased risk of heart problems from the popular heartburn drugs.