Stocks traded modestly higher as deal activity lifted investor sentiment, and as the market awaited the expected approval of Bush-era tax cuts.
The Dow Jones Industrial Average rose more than 35 points, after ending last weekon a positive note.
Caterpillar, Walt Disney, and Chevron rose, while Hewlett-Packard and Intel fell.
The S&P 500 and the Nasdaq also gained. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell to below , its lowest levels since April.
All key S&P 500 sectors gained led by energy, materials and telecom.
VIX futures were also trading at low levels, with the VIX for December delivery trading only about a point higher the VIX itself, Nate Peterson, senior derivatives analyst at Charles Schwab told CNBC.com.
"I think the belief is, closing out the year, (traders) don’t expect a lot of volatility or a pullback to the market," Peterson said.
Congress is set to vote on a tax package compromise put forward by President Obama that would extend Bush-era tax cuts for two years. The extension is expected to pass even though it proved highly controversial with Democrats.
Treasurys slumped in anticipation the tax plan would stimulate the economy and add to inflation. The price of the 10-year Treasury note fell, pushing the yield to 3.35 percent. Earlier, the 10-year yield hit a six-month high.
The dollar , meanwhile, fell against a basket of currencies as the euro rose more than 1 percent.
Deal activity was also supporting the market as Dell agreed to buy Compellent Technologies for about $960 million in cash, as it pushes into cloud computing and General Electric announced plans to buy Wellstream Holdings , a British oilfield services company, for about 800 million pounds ($1.3 billion).
Also, Thermo Fisher Scientific, a scientific instruments maker, will acquire Dionex for $2.1 billion to broaden its lab-equipment offerings.
Energy stocks rose as oil topped $89 a barrel on news China's industrial output topped expectations in November, and after the Organization of the Petroleum Exporting Countries agreed to keep its production targets unchanged.
Cabot Oil & Gas advanced more than 5 percent after news the independent oil and gas company received an air quality permit for a compressor station to begin construction. Chevron and Exxon Mobil also gained.
Tech stocks moved on ratings actions by Goldman Sachs, which resumed coverage of information technology hardware companies. Apple rose more than 1 percent after Goldman added the tech giant to its "conviction buy" list with a price target of of $430 a share.
Other tech companies didn't fare as well: Goldman initiated Dell and Hewlett-Packard with "sell" ratings, and shares of both companies fell.
EMC, however, was resumed with a "buy" rating, while Goldman initiated coverage of Xerox with a "neutral" rating and a $12 price target. The brokerage resumed coverage of IBM , NetApp and Seagate Technology with "neutral" ratings.
Google , meanwhile, rose after Wedbush raised its rating on the Internet search giant to "outperform" from "neutral," and boosted its price target to $750 a share from $575. Wedbush said Google will benefit from social secular trends accelerating the amount of time people spend online.
Google and Apple also benefited from dismissal of a patent lawsuit against the company bought by Paul Allen, co-founder of Microsoft .
A Swatch Group unit effectively won a case it brought against Costco Wholesale over reselling its Omega unit watches when The U.S. Supreme Court said it would not decide a copyright infringement caseafter deadlocking 4-4.
In other news, Genzyme now has until Jan. 21 to consider Sanofi-Aventis' $18.5 billion cash offer. And grocery-store chain Great Atlantic & Pacific Tea , which owns S&), Waldbaum's and Super Fresh supermarkets, filed for bankruptcy over the weekend.
Also, the board of Hormel Foods approved a 2-for1 stock split, which would be a first for the maker of Spam in ten years.
Federal Express was expected to have the busiest day in its history Monday, shipping 63 million items, up from 57.5 million in the week of Dec. 13 last year.
Walt Disney rose after Evercore raised its rating on the entertainment company to "overweight" from "equal-weight" and lifted its price target for the company to $44 a share from $38.
Pfizer got a boost from Barron's, which said in an article over the weekend that the stock was appealing at "just 7.6 times expected earnings."
On the U.S. economic front, the 2010 holiday shopping season could be the brightest since the recession as respondents to the CNBC All-America Economic Surveyreported being optimistic. Still, the survey revealed real optimism remains elusive as consumers only expect to boost their holiday spending by a small amount this year.
Meanwhile, liquidity tracking company TrimTabs said it was "cautiously bullish" on U.S. stocks and said the outlook for the economy had improved thanks to recent economic data.
Also in U.S. economic news, the Federal Reserve will meet Tuesday for its monthly meeting to discuss monetary policy. The Fed is expected to confirm its flexible approach to stimulating the economy and keep its quantitative easing program, where the Fed buys assets to add liquidity, unchanged.
No major economic news was on the calendar Monday, while data on inflation, retail sales, and manufacturing will be out later in the week.
In China, inflation was being closely watched after policymakers stopped short of raising interest rates to cool growth in the region. China issued another selective hike to bank reserve ratios instead.
Chinese stocks ended sharply higher after the policy news, with most Asian indexes closing higher. European shares were in the green with mining stocks leading the gains.
On Tap This Week:
TUESDAY: NFIB small biz index, PPI, retail sales, business inventories, FOMC meeting announcement; before-the-bell earnings from Best Buy.
WEDNESDAY: CPI, credit card default rates, MBA mortgage applications, New York manufacturing survey, industrial production, housing market index, oil inventories; Honeywell's 2011 outlook and Atlanta Fed Pres Lockhart speaks.
THURSDAY: Housing starts, jobless claims, Philadelphia Fed survey; before-the-bell earnings from FedEx, General Mills; after-the-bell earnings from Oracle, Accenture, Research In Motion, and Take-Two.
FRIDAY: Leading indicators, Quadruple witching.
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