Stocks got a boost from a better-than-expected report on the housing market, which overshadowed Caterpillar's gloomy outlook and other earnings worries.
The Dow Jones Industrial Average was up more than 100 points, or 1.5 percent. The S&P 500andNasdaq advanced more than 2 percent.
This comes on the heels of a rally in tech and bank stockson Friday, which capped a dismal week that included the worst inauguration day sell-off in history and shaved 2.5 percent off the Dow.
On Monday, the National Association of Realtors reported that existing-home sales jumped 6.5 percentto a 4.74 million annual rate, blowing past expectations of a 4.4 million pace. And leading indicators rosefor the first time since June, the Federal Reserve reported, as government bailouts increased the money supply; economists had expected a 0.3-percent drop.
Banks rallied, boosted by reassurances from UK bank Barclays, which said it wouldn't seek more capital and that it is profitable. Some pros said the sector also got a boost after House Speaker Nancy Pelosi quelled concerns about all-out nationalization of U.S. banks in comments on the weekend talks shows.
Bank of America was the biggest gainer on the Dow, followed by Home Depot and Citigroup.
U.S. investors cheered Home Depot after the home-improvement retailer beat earnings expectations and said it would cut 7,000 jobs from its payrolls.
News that Pfizerhas agreed to buy rival Wyeth for about $68 billion, or $50 a share, also gave the market a recharge as it restored some hope in credit lending and stock valuations. Wyeth shares jumped.
"The market is certainly showing signs that there's opportunity," Alan Lancz, president of Alan B. Lancz & Associates, told Reuters. "Any kind of M&A is a positive and is seen as marking the beginning of the light at the end of the tunnel. You're going to see a lot of deals in healthcare. It's cheap. Even in the utilities sector there's a lot of deals waiting to happen."
General Electric shares advanced after Standard & Poor's said the conglomerate's 44-percent drop in profit won't affect its top-tier credit rating. GE is the parent of CNBC.
But Caterpillar shares tumbled more than 9 percent after the company missed fourth-quarter estimatesand said it was facing difficult times ahead, requiring a cut of 20,000 in its workforce.
McDonald's shares also slipped as the fellow Dow component reported a drop in quarterly profit, even though it beat expectations.
CAT and McDonald's were just the first of 11 Dow components reporting earnings this week. Due out after the closing bell are results from American Express . Analysts raised concern that AmEx might have to cut its dividend or raise additional capital, particularly after dismal results from rival Capital One that showed credit-card spending fell 10 percent.
Elsewhere, shares of Sprint Nextel edged lower after the telecom said it would cut up to 8,000 jobs, or 14 percent of its workforce, and will suspend 401(k) payments in an effort to cut costs.
Kimberly-Clark lost 3.4 percent after it reported lower profits which it attributed to slowing business for Huggies diapers and the various paper products the company makes.
Shares of Dutch financial group ING soared more than 27 percent after it said it was taking a $1.3 billion-loss, tap into a Dutch government loan guarantee employee, and cut 7,000 jobs. The move was seen as an effort towards addressing the risk that the company faces ahead.