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Optimism Fuels Stock Gains; Ford Jumps

Stocks advanced Monday as investors were encouraged by economic reports out of China and the U.S. and shrugged off the General Motors bankruptcy filing.

"I think that the crisis mode is over. We're not at the abyss," said Nadav Baum, managing director of investments at BPU Investment Management in Pittsburgh. "Now we've just got to deal with a recession. We know how to deal with a recession," he said.

Fueling the fire, the S&P 500 broke above its 200-day moving average, 928. Once it crossed over, there was no looking back and all three major indexes shot higher.

"I think a lot of people feel like they missed the boat," Baum said, adding that the improvement in consumer confidence has also given investors confidence to wade back into stocks. "It's almost like the risk trade is unwinding," he said.

As expected, General Motorsfiled for bankruptcy protectionthis morning as part of a plan that will see US taxpayers taking a 60 percent stake in the company.

Shares of GM gyrated wildly: They dropped below 50 cents in early trading, then surged to more than $1 amid short coveringbefore falling back near Friday's close of 75 cents.

As expected, GM is going to get booted from the Dow, as is Citigroup. They will be replaced by Cisco and Travelers.

>> Dow Changes=Arbitrage Opportunity?

Meanwhile, a judge cleared Chrysler to sell most of its assets to Italy's Fiat, moving the automaker one step closer to exiting bankruptcy protection, possibly this week.

Fiat will control 20 percent of the assets, a health-care trust aligned with the United Auto Workers union will control 68 percent and the U.S. and Canadian governments will control the remaining 12 percent.

On the flip side, Ford was benefiting from the turmoil in the industry and said it plans to increase production 10 percent this year to make up for slowdowns in the industry. It shares surged about 5 percent, after gaining about 17 percent in the past two weeks.

Retail stocks advanced, with Macy's and JCPenney up more than 15 percent. Target gained over 6 percent.

Techs were up sharply, including Intel , Dell and Microsoft .

Getting the day off to an upbeat start, a report showed China's manufacturing sector continued to expand, albeit moderately, in May. That gave investors encouragement that China's economy is stabilizing and the worst may be over for the global economy.

That not only boosted stocks, it also fueled the rise in oil prices, which settled at $68.58 a barrel.

>> Want to Make Money on Stocks? Ask a Fifth Grader!

Here in the U.S., a report showed an improvement in America's factories: The Institute for Supply Management's gauge of manufacturing activity rose to 42.8 in May from 40.1 in March, slightly better than the 42 economists had expected.

And construction spending jumped 0.8 percent in April, double of March's 0.4-percent increase.

Personal income rose 0.5 percentin April, helped by the Obama stimulus package, though spending slipped 0.1 percent.

The major indexes racked up a gain for the month of May, marking the third positive month in a row, as the momentum of the recent rally held.

The market's main fear gauge, the Chicago Board Options Exchange's Volatility Index, remained below the critical 30 level that generally indicates high anxiety.

Elsewhere, shares of Irish biotech Elan gained more than 10 percent on news that it was looking into selling a minority stake to Bristol Myers Squibb. Bristol Myers stock ticked slightly higher.

ArcelorMittal rose more than 6 percent following news that the steelmaker had reached a deal with workers in Kazakhstan for three-month pay reductions that eliminated the need for mass layoffs. The company already has laid off about 1,000 of its American workers in a move to cut costs.

This Week:

MONDAY: Obama speaks on GM; Geithner in China
TUESDAY: Auto sales; pending-home sales; Earnings from Hovnanian
WEDNESDAY: Weekly mortgage applications; ADP employment report; ISM services index; factory orders; weekly crude inventories; Earnings from Toll Bros.
THURSDAY: NY Fed Pres. Dudley speaks; Chain-store sales; ECB, BOE rate decisions; weekly jobless claims; Earnings from Ciena
FRIDAY: May jobs report; consumer credit

Send comments to cindy.perman@nbcuni.com.