Stocks extended a September rally by breaking through a long-held trading range to hit four-month highs a day before the Federal Open Market Committee meets.
The Dow Jones Industrial Average rose 145.77 points, or 1.4 percent, to close at 10,753.62.
Most Dow components were higher, led by American Express ,JP Morgan , and Home Depot . Cisco fell.
The S&P 500 rose 17.12 points, or 1.5 percent, to close at 1,142.71, breaking through the crucial 1,130 barrier that has capped the index's highs since mid-May.
The Nasdaq rose 40.22 points, or 1.7 percent, to close at 2,355.83. And the CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 21.
Monday's results put the market on pace to have the best month in more than a year: the Dow is up about 7.4 percent for September, while the S&P is up about 9 percent and the Nasdaq is up about 11 percent.
The 10 key S&P sectors were all higher, led by financials, consumer discretionary, and energy.
The move to higher levels probably reflects "a sense that the economy is not as bad as some of the 'double-dippers' have been saying," said Tom Schrader, managing director for U.S. Equity trading at Stifel Nicolaus Capital Markets.
Schrader noted oil markets have been strong all day, which typically indicates strength in the economy. Oil ended at nearly $75 a barrel.
The market also may be moving higher for technical reasons. Once the S&P 500 broached about 1,134, 25,000 E-mini S&P 500 futures contracts traded, meaning a technical "buy" signal may have been triggered, he added.
Earlier on CNBC, Art Cashin, director of floor operations at UBS financial services said the S&P 500's move above the 1,130 level could spark a "stampede of short-covering."
Financials as a whole were strong all day. American Express led the blue-chip index after Bank of America Merrill Lynch established a position in the financial services firm after it had upgraded the consumer finance sector to "overweight" from "equal weight." The brokerage cited a faster-than-expected drop in credit-card charge-offs.
Financial giants JP Morgan and BankofAmerica also rose.
Among retailers, Office Depot soared more than 10 percent after Janney Capital Markets said the company is in a good position to benefit from an economic recovery, and reaffirmed the office supply retailer's "neutral" rating.
Gap, meanwhile, rose after Goldman removed the clothing retailer from its "Americas sell list," and raised its rating on the stock to "neutral," citing sales growth.
Best Buy rose after Oppenheimer raised its rating on the electronics retailer to "outperform" from "perform" and increased its price target to $38 from $45, saying the company would benefit from new products during the holiday shopping season, and from its relationship with Apple.
Apple , meanwhile, also advanced after Kaufman Brothers raised its price target for the electronics maker to $374 from $350, citing sales momentum for the iPad.
Shares of Netezza soared after IBM announced it would buy the tech analytics and data warehouse firmfor $1.78 billion, or $27 a share. Rivals Teradata and CommVault Systems also jumped.
Cisco was among the only Dow components to slip Monday, but the tech bellwether may have experienced profit taking after rising 6 percent last week, the best performance among all Dow stocks.
Nu Horizons Electronics , meanwhile, soared more than 100 percent after Arrow Electronics announced it would acquire the electronics distributor for about $128 million, or $7 a share.
Telecoms were raised to "overweight" from Credit Suisse, which said the sector should trade at a premium to the S&P 500 for up to five years. AT&T rose after Credit Suisse raised the telecom giant to "outperform" from "neutral."
Rival Verizon also rose after the Dow component named Lowell McAdam as the company's president and chief operating officer. McAdam is scheduled to take up the new position on Oct.