Stocks pared gains in the final hour of trading Monday, but remained significantly higher, buoyed by AT&T's $39 billion planned purchase of Deutsche Telecom's T-Mobile USA and buying opportunities in oversold stocks.
The Dow Jones Industrial Average gained more than 165 points, after rising more than 200 points earlier in the session, and after finishing lower last week.
Among Dow components, Boeing, 3M and General Electric gained, while Pfizer lagged.
The S&P 500 rose to under 1,300, while the Nasdaq rose more than 1.5 percent. The CBOE Volatility Index, widely considered the best gauge of fear in the market, plunged more than 14 percent to below 21. (Read more: Is VIX Being Tricky or Is Worst Over for Stocks?)
Most key S&P 500 sectors gained, led by energy, industrials and technology. Telecom fell.
"You read a headline like $39 billion....this is a headline that can create a bounce," said Dan Cook, CEO of IG Markets in Chicago, referring to AT&T's plans to buy T-Mobile USA. While there are "so many hurdles in a deal like that, for today, it cheers markets and gives (investors) something to focus on other than crisis in Japan, crisis in the Middle East."
But, Cook said, the market remains very "event-driven," and short-term trading is in the driver's seat. That's why there have been such big swings up as well as down over the last couple weeks, as traders try to assess the meaning of fast-moving geopolitical events, he said.
"We could be down 200 tomorrow," Cook said. "There's no good long-term trend to really stick to."
Traders also said today's move reflects the sharp decline stocks took last week as the nuclear crisis in Japan was unfolding.
As of Friday's close, the Dow had fallen 4.3 percent from its 2011 high on Feb. 18, while the S&P 500 had fallen 4.75 percent. Investors who believed stocks had been oversold began buying stocks at the end of last week, and that buying continued on Monday.
"The market has already discounted the worst case scenario, and is now looking forward," Dan Fitzpatrick, president of Stockmarket Mentor said on CNBC.
In the face of extreme volatility, however, Fitzpatrick said it is a "traders market, because of all the uncertainty."