Stocks rallied to the finish line after another volatile session as signs began to emerge that credit markets may be defrosting.
Investors were also digesting comments from Federal Reserve Chairman Ben Bernanke that we may need another government stimulus package and details from Treasury Secretary Hank Paulson about how the capital-investment plan will work.
The Dow Jones Industrial Average ended up 413.21, or 4.7 percent, at 9265.43, after a wobbly morning, then jagged ascent since about 11:15 a.m. ET.
The S&P 500 rose 4.8 percent, while the Nasdaq added 3.4 percent.
This marks the Dow's 23rd triple-digit move in the past 26 sessions. However, it's only the the third day in October that the Dow and S&P posted a gain.
All 30 Dow stocks moved higher, with Chevron the biggest gainer and Wal-Mart the lowest gainer. (Track all 30 Dow stocks.)
This comes after stocks last week had their best week in more than five years despite wild swings that saw the CBOE volatility index set a new record above 80. Some market pros say the soaring VIXand Warren Buffett's pitch to buy American stocksare signs that we may be near the bottom.
In Monday's action, the VIX dropped 25 percent to about 53.
Offering stocks a boost was a drop in the cost of overnight lending ratesbetween banks. The closely watched London Interbank Offer Rate, or Libor, slipped across the board, with the overnight rate dropping to 1.51 percent, while the 3-month rate declined to 4.06 percent.
"I think one of the most encouraging signs, is is a loosening up of the credit market," Joe Heider, of Dawson Wealth Management, told CNBC. "We're actually recommending to our clients that now is a good time to go back into the equity markets in a broad, diversified fashion."
And on the economic front, leading indicators rose for the first time in five months, climbing 0.3 percent in September. Economists had expected the gauge to slide 0.2 percent after a 0.9-percent drop in August.
The latest data "suggest that conditions in the nonfinancial economy are not falling apart," Ken Goldstein, the Conference Board's labor economist, said in a statement. "Data on hand reflect a contracting economy but not one in free fall."
Bernanke told the House Budget Committee that we may need a second government package to stabilize the economy, suggesting that prior efforts may not have made as big a dent as the market had hoped.
Treasury Secretary Hank Paulson offered the market some much-appreciated clarity about how the application process will work for the capital-purchase program. It's not first come, first serve, Bernanke said. Rather, applications will be reviewed by the Treasury's new Office of Financial Stability based on streamlined standards. Banks will be expected to make use of the new funds by increasing lending.
"Our purpose is to increase confidence in our banks and increase the confidence of our banks, so that they will deploy, not hoard, their capital. And we expect thenm to do so, as increased confidence will lead to increased lending," Paulson said in a statement.
This is the start of an earnings-packed week, offering investors a chance to dig down into corporate numbers and see exactly how companies are doing. We've got a slew of financials and drug makers on tap for this week, and about a third of the Dow reporting, including American Express , Pfizer and Microsoft .
American Express reports after the bell. Analysts expect the credit-card company to post earnings of 59 cents a share.
Mattelmissed its target, while rival Hasbro beat estimates. Both toy makers were optimistic about the coming holiday season.
Halliburton and Weatherford Internationalbeat earnings expectations, sending shares up 14 percent and 16 percent, respectively.
Amid all of the other causes for anxiety right now, some market pros are wondering: Do earnings really matter for investors?
Chevron and ExxonMobil led the Dow with gains of more than 10 percent after Oppenheimer upgraded its rating on big oil and gas stocks in a report titled, "Now Is The Time to Buy Oil and Gas Stocks." The analysts said they believe the upside potential for the stocks over the next year could significantly outweigh any downside from a drop in energy prices.
Crude oil rose $2.40, to settle at $74.25 a barrel.
In merger and acquisition news, Exelon, the largest nuclear power operator in the U.S., made an unsolicited offer to acquire NRG Energy for $6.2 billion in stock. The combined company would be the No. 1 U.S. power company, with enough electricity to serve nearly 45 million homes, Exelon said late on Sunday.
The financial sector advanced, with the XLF, the financial sector exchange-traded fund, up 5 percent. However, there were some pockets of weakness, notably in regional banks such as KeyCorp and State Street , which lost 3.4 percent and 1.9 percent, respectively.
American depositary shares of Dutch bank ING soared 21 percent after the bank received a $13.5 billion cash injection from the government.
Governments around the world are bailing out their banks. Sweden outlined a plan worth more than 1.5 trillion crowns ($205 billion) to support its financial system, while Germany set strict conditionsfor its bank-rescue plan. (See complete coverage of the impact of the credit crisis on Europe.)
In tech land, American depositary shares of Research In Motion skidded 8.6 percent after Pacific Crest Securities said its checks show BlackBerry sales have been slower than expected.
Shares of rival Apple , which reports after the bell on Tuesday, roes 1.1 percent following news that Apple's September sales beat expectations, with Mac sales up 19 percent from a year earlier and iPod sales up 7 percent, according to a report from NPD Group.
Yahoo is expected to outline plans to cut expenses, which would include future job cuts, when it reports its quarterly earnings on Tuesday, according to various press reports.
MONDAY: Earnings from American Express and Texas Instruments
TUESDAY: Fed's Stern speaks; Earnings from BlackRock, Caterpillar, Coach, DuPont, Pfizer, Schering-Plough, State Street, UnitedHealth and USBancorp
WEDNESDAY: Weekly mortgage applications; weekly oil inventories; Earnings from AT&T, Boeing, Boston Scientific, ConocoPhillips, GlaxoSmithKline, McDonald's, Merck, Northrop Grumman, Philip Morris, Wachovia, WellPoint, Wyeth, Amazon, Amgen, Pulte Homes, Sallie Mae
THURSDAY: Weekly jobless claims; weekly natural-gas inventories; Earnings from Altria, Bristol-Myers Squibb, DaimlerChrysler, Eli Lilly, Raytheon, SunTrust, Union Pacific, UPS, Xerox and Microsoft
FRIDAY: Existing-home sales; Earnings from LM Ericsson