Stocks closed higher with the Dow finishing 20 points shy of 12,000 on the strength of materials and tech stocks and as investors awaited a handful of major earnings later this week.
The Dow Jones Industrial Average rose 108.68 points, or 0.92 percent, to close at 11,980.52—inching closer to the psychologically important 12,000 level. The close was the highest for the blue-chip index since June 19, 2008.
Alcoa , IBM and Cisco gained, while Bank ofAmerica slid.
The S&P 500 rose 7.49 points, or 0.6 percent, to close at 1,290.84, while the tech-heavy Nasdaq snapped a three-day losing streak to rise 28.01 points, or 1.04 percent, to close at 2,717.55. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 18.
Among key S&P 500 sectors, technology, industrials and materials advanced.
The euro gained for a fifth session, climbing to a fresh two-month high against the dollaras investors overcame earlier doubts on the currency's prospects and pushed it through key technical and trading levels on expectations of higher euro zone interest rates.
The Dow last closed above 12,000 on June 19, 2008, when it finished the session at 12,063.09.
The market's biggest movers on Monday were defensive, large cap names, and not smaller, so-called momentum stocks. One reason may be that investors want to get out of risky names as the market hits highs, but they want to stay invested in equities, said Marc Pado, U.S.market strategist at Cantor Fitzgerald.
"Money doesn’t want to leave the market, it's not fleeing to cash or bonds, but (investors are )seeking out equity names that are more defensive: health care, food, maybe some pharmaceutical stocks—conservative names that take you out of the risk but don’t take you out of the market," Pado said.
Material stocks led the market higher Monday, aided by the stronger dollar. Alcoa was among the leaders, as CEO Klaus Kleinfeld said Monday that the aluminum producer expects Asian countries, including China, will drive strong demandthis year. Kleinfeld told reporters on the sidelines of a conference in Riyadh that demand growth is projected to rise 12 percent, Reuters reported.
Gold prices, meanwhile, rose to about $1,344 an ounce as the precious metal's third consecutive weekly loss attracted some buyers back to the market.
Technology stocks were among the strongest performers, although some of the sector's highest flyers—including VMWare, QualComm and Citrix—remained weak in the wake of F5 Network'spoor outlook last week.
Meanwhile, shares ofanother high-flyer, Salesforce.com, which provides cloud computing services, fell nearly 4 percent to the bottom of the S&P 500 after a report in Barron's said the "momentum" stock could fall by 20 percent. The article said analysts were ignoring the company's high valuations, and potential for a "huge employee-options expense."
"There was definitely some fear F5 did not beat...and that had a lot of people gut-checking on the high flyers," said Neal Karchem, senior equity analyst at Bel Air Investment Advisors. "All the big winners from last year seemed to give some back."
VMWare releases earnings after the bell today, while EMC and Juniper deliver earnings on Tuesday, and Citrix and QualComm on Wednesday.
Bigger cap names, particularly among semiconductor stocks, fared better.
Intel shares rose after news the tech giant would increase stock buybacks by $10 billion, for a total of $14.2 billion.
Nvidia skyrocketed after Barron's said the chipmaker would double in price in 2011. Texas Instruments, which reports earnings later today, also gained.
The release of VMWare's earnings after the close will give the market a good indication of whether F5's results were industry-wide, or an anomaly, said Scott Redler, chief strategic officer of T3live.com.
"If they have a solid report and great guidance, there could be a short squeeze on a lot of those stocks," Redler said, referring to investors who held short positions in the stock in the wake of F5's earnings. A short position is a bet a stock's price will fall.
Shares of Molycorp soared after news the rare earth producer's shareholders will sell up to $500 million in shares. The company will sell $172.5 million in preferred shares at the same time, to fund expansion of the company's California mine.
Another week filled with big earnings reports kicked off with McDonald's posting earnings that came slightly below forecast, though the fast-food chain topped expectations on revenue.
Halliburton shares rose after reporting better-than-expected profit and sales, as did shares of rival Schlumberger after posting strong results on Friday. FBR raised its price target on Schlumberger to $110 from $97.
Oil prices slipped below $88 a barrel, breaking a key support level, as pressure from high inventories offset hope that rebounding economies would lift demand this year.
Philips tumbled however, after the electronics company warned that consumers in mature markets would be reluctant to spend this year. The group blamed weak TV sales for disappointing profit figures.
Meanwhile, GE shares jumped to their highest level since November 2008 after the parent company of CNBC posted a better-than-expected profitlast week, helped by strong emerging-market demand for heavy equipment, boosting the market and sparking optimism the economy was strengthening. In addition, both Deutsche Bank and Barclays raised their price targets on GE to $22 from $20.
Fellow Dow component American Express is slated to reportearnings after the bell, along with CSX , Amgen and Texas Instruments.
Among financial stocks, Citigroup slipped after news the government would sell 465.1 million Citigroup warrantsthat give the holder the right to buy Citi common stocks at a fixed price.
AIG was among the worst performers on the S&P, slipping nearly 3 percent, but shares rose after news after the market closed that CEO Bob Benmosche received a good prognosis from his doctors, and said he would stay on at AIG according to a previously announced timetable.
Shares of Berkshire Hathaway gained after news in Barron's that the company, run by Warren Buffett, may pay a dividend in the next 12 to 18 months.
RadioShack sank to the bottom of the S&P 500 after news Chairman and CEO Julian Day will retire in May. The electronics retailer also forecasted disappointing earnings for its fiscal fourth quarter.
JCPenney rose after news that Steven Roth, chairman of Vornado Realty Trust William Ackman, the activist investors, were joining the board. However, the chain announced they are closing some stores, outlets and call center locations to streamline operations and boost profits.
RockTenn has agreed to buy its bigger competitor, Smurfit-Stone Container, for $3.5 billion in cash and stock. Smurfit-Stone emerged from bankruptcy just seven month ago. The combined company would be the second largest container board producer after International Paper . The merger was approved by the boards of both companies.
Among health care stocks, Clinical Data skyrocketed more than 50 percent after a drug it has developed to treat adult depression was approved by the Food and Drug Administration.
Shares of Vivus slumped, however, after the FDA asked the biopharmaceutical company for more data to assess whether an ingredient in its weight-loss drug Qnexa causes birth defects.
And Novartis announced it was buying Genoptix , a cancer diagnostic laboratory company, for $470 million. Shares of Genoptix soared more than 20 percent on the news.
Sara Lee said it will weigh an offer this weekfrom a group of private equity firms that values the food manufacturer at nearly $13 billion.
First Solar jumped after Goldman Sachs added the solar-energy company to its conviction buy list, citing costs cuts and reduced exposure to European markets.
Volume on the New York Stock Exchange was light, with only 3.9 billion shares changing hands. On the NYSE floor, 962 million shares changed hands.
Investors are looking ahead to the Fed’s meeting Tuesday and Wednesday, and several measures of the housing market, including the S&P Case Shiller Home Price Index on Tuesday and new home sales figures on Wednesday.
The Fed was not expected to take any action at its two-day meeting, but it could comment on the economy and inflation outlook. Later this week, the focus will shift to reports on consumer sentiment and the first reading of fourth quarter gross domestic product.
In the bond markets, U.S. Treasury will be auctioning $35 billion in 2-year notes, $35 billion in 5-year notes, and $29 billion in 7-year notes Tuesday through Thursday.
Also, President Obama is expected to give his State of the Union address Tuesday. Obama has signaled he will call for efforts to tackle the problem of high annual U.S. deficits and surging debtin his nationally televised annual address. Also this week, the World Economic Forum takes place in Davos, Switzerland, beginning on Wednesday.
Shares in Europe closed higheras miners and defensive stocks gained. French Finance Minister Christine Lagarde told CNBC European banks will have to undergo another round of stress tests which will be far more strict and credible, needed to restore credibility.
On the Calendar This Week:
MONDAY: After-the-bell earnings from American Express, Texas Instruments, Amgen and CSX.
TUESDAY: President Obama's State of the Union address; S&P Case Shiller Home Price Index, consumer confidence, Richard Fed business activity survey, state-by-state unemployment, two-year Treasury note auction, API weekly report; Bank of Japan monetary policy meeting; before-the-bell earnings from Johnson & Johnson, 3M, Travelers, Verizon and US Steel; after-the-bell earnings from Yahoo!
WEDNESDAY: Davos/World Economic Forum; mortgage applications, new home sales, oil inventories, five-year Treasury note auction, FOMC announcement; earnings before-the-bell from Boeing, United Technologies, Xerox; earnings after-the-bell from Netflix.
THURSDAY: Durable goods, jobless claims, pending home sales, natural gas inventories, seven-year Treasury note auction, money supply; before-the-bell earnings from AT&T, Caterpillar, and Colgate-Palmolive; after-the-bell earnings from Microsoft.
FRIDAY: GDP (first reading), consumer sentiment; NBCU/Comcast deal closes; before-the-bell earnings from Chevron and Honeywell.
More From CNBC.com: