On the tech front, Appleagreed to settle a long-running row over patentswith Nokia , which would give a boost to the faltering mobile-phone maker's earnings. Meanwhile, Apple is slated to start selling its latest Macbook Air in late June.
Intel and Entropic Communications rose after the two tech firms announced a partnership to develop an advanced video gateway.
Hewlett-Packard announced the departure of two other senior officers Monday afternoon and said a veteran executive was moving to its board amid another management shakeup under its new CEO Leo Apotheker.
Meanwhile, Cisco slipped after RBC cuts its rating on the tech bellwether to "underperform" from "outperform" and price target to $14 from $22.
On the earnings front, Best Buy jumped after the electronics retailer's results beat estimatesand the firm backed its earnings outlook for the year.
GT Solar raised its first-quarter profit and revenue outlook when it after product upgrades that had been expected in the second quarter were finished early. Other solar stocks were also higher following the news.
Avis Budget said it acquired Avis Europe for $1 billion, raising concerns that the car-rental firm will end the bidding war for Dollar Thrifty , which had also received an offer from Hertz .
Among the day's economic news, retail sales—which provide a snapshot of consumption—fell for the first time in 11 months, although the decline was less than expected. Total retail sales slipped 0.2 percent, according to the Commerce Department. Economists had forecast retail sales falling 0.4 percent, according to Reuters.
Department stores Nordstrom , Macy's and Saks were up more than 2 percent.
JCPenney also gained after the clothing retailer named former Apple retail's senior vice president Ron Johnson as the new CEO.
Meanwhile, the Producer Price Index, which measures price changes before they reach the consumer, increased 0.2 percent in May, according to the Labor Department. Excluding the volatile food and energy categories, the core index also increased 0.2 percent.
“Numbers were mostly in line, maybe a little bit better, so the scare is behind us now and we’ve backed into a level where we can find support,” Gordon Charlop of Rosenblatt Securities told CNBC.
“Corporations have cash and we know that at some level, they’ll have to put them to work and at some point, and so we’ll see more M&A activity and more buybacks,” Charlop added.
Stocks were initially boosted after the Chinese central bank raised reserve ratios requirement for banks for the ninth time since last October after data showed inflation rising to its highest level in almost three years.
The Chinese output report helped boost metals prices, lifting mining and industrial stocks such as Freeport McMoran and Caterpillar .
Analysts said the data suggested a measured slowdown of the Chinese economy and this encouraged investors to go into risky assets. But economist Nouriel Roubini said China is facing a "meaningful probability" of a hard landing.
Oil prices gainedfollowing the economic news with U.S. light, sweet crude rising to trade near $98 a barrel and London Brent crude above $120.
Also on the economic front, business inventories rose 0.8 percent to $1.5 trillion in April, the highest since October 2008, according to the Commerce Department. Economists polled by Reuters had forecast inventories rising 0.9 percent.
European shares closed sharply higher as investors bought into riskier assets after the positive Chinese economic report.
On Tap This Week:
WEDNESDAY: Weekly mortgage apps, CPI, Empire state mfg survey, Treasury international capital, industrial production, housing market index, Geithner testifies before House Financial Services, oil inventories, credit card default rates reported, Dell shareholder mtg, Google Chromebook goes on sale
THURSDAY: Housing sales, jobless claims, current account, Philadelphia Fed survey, Fed's Fisher speaks, money supply; earnings from Kroger, Pier 1 Imports, Smithfield Foods, Research In Motion
FRIDAY: Consumer sentiment, leading indicators, quadruple witching
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