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.