Stocks closed higher as some mildly optimistic economic news helped Wall Street begin the second quarter on a positive note.
Banks pushed the averages higher as Wall Street prepared for changes likely to be approved Thursday to the controversial mark-to-market accounting rules.
While the exact changes are unknown, the Financial Accounting Standards Board is likely to give banks leeway in how they price distressed assets, providing strength to balance sheets and, hopefully, a marketplace for the toxic loans that are hammering capital ratios.
Anticipation of the changes spurred a round of traders covering their short positions on financial stocks.
"Financials have been leading us all day. It's one of the first real good rallies we've seen," said Dave Lutz, managing director at Stifel Nicolaus. "We have a lot of short-term covering going into (the FASB meeting) and a lot of short covering in a lot of the financials."
Stocks were up as much as 2 percent earlier in the day but pulled back in the final hour as traders took profits and sent the financials off their highs.
American Express led gainers in the financial sector.
Economic news that wasn't as bad as expected help jumpstart the rally after the market opened sharply lower.
Home sales increased 2.1 percent in February while mortgage applications rose 3 percent last week.
Enthusiasm that the news signaled some hope for the housing market outweighed more dismal numbers in unemployment.
An ADP report on March job losses registered the highest numbers since the survey began in 2001. At the same time, planned layoffs dipped 19.3 percent in Marchto their lowest level since October, data from Challenger, Gray & Christmas showed.
All 30 Dow components dropped at the open, but bank shares led a recovery as did Caterpillar , which seemed to benefit from the housing enthusiasm. Another economic report showed that construction spending fell at a slower-than-expected rate in February, suggesting that the pace of deterioration was start to moderate.
General Motors was one of only two Dow losers, but the shares were well off their lows after the company's financing arm, GMAC, said it would resume making subprime loans in an effort to spur sales.
Shares of Honda rose after the company announced it would cut production in North America by 62,000 vehicles by shutting down factories for 13 days starting in May.
And Ford also gained even as the automaker reported a 41 percent annualized drop in sales for March that nonetheless beat estimates and was higher month-over-month.
Aerospace company Goodrich dropped after Wachovia downgraded the firm to "market perform."
In deals, Metavante , which provides banking and payment technologies to about 8,000 firms, was acquired by Fidelity National in an all-stock deal valued at $2.94 billion.
In technology, Apollo Group dragged on the Nasdaq after the education services company, which had been a bright spot as the recession intensified, dropped sharply on an analyst downgrade.
The move was poison for the industry, with shares of competitors ITT Educational Services and DeVry also moving sharply lower.
Asian stocks ended the day mixed, while European shares were in the red, as the Group of 20 summit commenced amid violent protests.
Obama acknowledged the G20 countries will not agree on every point but he said a structure must be put in place to ensure cooperation.
In other markets, oil fell more than $1.50 a barrel to nearly $48, while the dollar roseand Treasurys prices firmed up after the ADP jobs report.
Market breadth was solidly positive, with gainers beating losers nearly 2 to 1 as 980 million shares changed hands by 3:15 pm on the New York Stock Exchange.