Stocks climbed Monday extending the September rally by ending higher for the eighth session out of the past nine following new global banking rules and a robust Chinese factory report.
The Dow Jones Industrial Averagerose 81.36 points, or 0.8 percent, to 10,544.13.
Microsoft, JP Morgan ,and Intel led the blue chips higher. Meanwhile, McDonald's and ExxonMobil fell.
The S&P 500rose 12.35 points, or 1.1 percent, to 1,121.90, while the Nasdaq rose 43.23 points, or 1.93 percent, to 2,285.71. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 22.
Financials, technology and materials were the strongest sectors on the S&P, while consumerstaples slumped.
The upbeat start to the trading session is consistent with two consecutive positive weeks so far in September. With the Dow up 5.3 percent for the month, the S&P up 6.9 percent, and the Nasdaq, up 8.1 percent, the major averages have nearly wiped out August's losses.
The S&P 500, which ended at 1,121, traded above its 200-day moving average for the first time since early August, but is not quite ready to break out beyond 1,130, said Marc Pado, U.S. market strategist and technical analyst Cantor Fitzgerald. Once it does, the index could soar to 1,250 by year end, Pado said.
Overall, Pado is encouraged market bears didn't get the upper hand during a holiday-shortened trading week, and said the strength in the market seen so far this month bodes well for the rest of the year. Typically September is weak as fund managers sell losses to clean up their portfolios before the end of the quarter, which often is also the end of their fiscal year.
"(The bears) were unable to move the market down last week when they had every opportunity to do so," Pado said. "If we can get up there and make it through this week and not give up ground...we're really poised below that 1,130 level for any kind of break out to really reach momentum."
Microsoft shares began to soar more than 5 percent late in the trading day after the company said it plans to introduce wireless Internet networks on unused television airwaves. The computing giant also is releasing the latest version of its popular videogame. “Halo: Reach” goes on sale at 12:01 am Tuesday. There is also market speculation that Microsoft is planning a debt sale to fund dividends and buybacks.
Banks were boosted by news they have until 2018 to comply with new Basel III banking capital rules, and the fact the bank capital rules are not as stringent as feared.
The news lifted the whole sector, including Citigroup and Wells Fargo and prompted Keefe, Bruyette and Woods to upgrade European banks to "overweight" from "neutral."
Regionals Huntington Bancshares, Marshall & Illsey , Regions Financial and Zions Bancorp jumped after Sanford Bernstein raised its rating on the firms to "outperform" from "market perform."
Meanwhile, Citigroup cut third-quarter profit estimates for Goldman Sachs and Morgan Stanley, citing a slowdown in trading activity. But the bank giants were still trading higher.
“You buy into banks because fundamentals are improving,” Chris Kotowski, analyst at Oppeneimer & Co. said on CNBC. “The thing to focus on is that month-in and month-out, credit quality is getting better since the fourth quarter of last year...and after that, you’re going to get loan-growth at some point in the future."
Elsewhere in the sector, shares of MasterCard and Visa declined after Bernstein analysts downgraded the credit-card giants to "market perform" from "outperform."
In merger and acquisition news, Hertz Global beat AvisBudget Group to buy Dollar Thriftyafter it raised its offer to $1.56 billion, or $50 per share.
Shares of ArcSight surged more than 20 points after Hewlett-Packard said it has agreed to buy the cybersecurity firm for $1.5 billion in cash.
Meanwhile Genzyme , which rejected an offer from Sanofi-Aventis , agreed to sell its genetic testing businessto Laboratory Corp of America Holdings for $925 million in cash. Lab Corp. slumped, and was the worst performing stock in the S&P 500.
Industrials and materials benefited from a report that Chinese industrial output rose 13.9 percentfrom the year-ago period in August.
In the energy sector, Enbridge shares slipped as the pipeline company sought to fix a leaky section of pipe in Illinois. Oil traded above $77a barrel.
PG&E shares were lower after several analysts were mixed on the extent to which the utility provider will suffer following lastweek's explosion of its natural gas pipeline in California. Credit Suisse cut its outlook on the firm to "neutral" from "outperform," Morgan Stanley cut its outlook to "equal weight" from "overweight," while Macquarie kept its "outperform" rating.
Exxon shares also fell after Raymond James cut the oil giant's stock to "market perform" from "outperform." In addition, Deutche Bank cut Exxon's rating to "hold" from "buy," citing the oil company's exposure to the unconventional U.S. natural gas market, and cut its price target on the firm to $65 from $70.
Raymond James also cut rival Chevron to "outperform" from "strong buy."
Meanwhile, compensation claims from the Gulf of Mexico oil spill will be less than the $20 billionBP had set aside in a claims fund, according to analysts at Citigroup who met with incoming BP CEO Bob Dudley.
A123 Systems soared after the rechargeable lithium-ion batteries and battery maker announced the opening of the largest manufacturing plan in North America.
Xerox surged to the top of the S&P 500, after a Barron's cover story over the weekend predicted the copier and printer manufacturer's shares could double over the next year.
In economic news, the U.S. Treasuryreported a $90.53 billion budget deficit in August, less than expected, and smaller than the $103.6 billion budget gap last year, according to data released Monday.
Several important reports are due out later this week including retail sales on Tuesday and industrial production on Wednesday.
Congress returns from its month-long break this week, with the small business jobs bill one of the items topping its agenda. Many political analysts see that as the last hope for the Democrats on improving the job market ahead of the November elections.
Volume on the New York Stock Exchange remained light, with 934 million shares changing hands. Advancers outpaced decliners 4 to 1.
On the Calendar:
TUESDAY: NFIB small business optimism, retail sales, IBD/TIPP economic optimism index, business inventories, UN General Assembly, API weekly report; before-the-bell earnings from Kroger and Best Buy
WEDNESDAY: MBA mortgage applications, Empire State manufacturing survey, import and export prices, industrial production, weekly oil inventories
THURSDAY: PPI, current account, jobless claims, Phili Fed survey; before-the-bell earnings from FedEx, after-the-bell earnings from Oracle and Research In Motion
FRIDAY: CPI, consumer sentiment
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