Stocks gained as a slide in the dollar boosted materials stocks, but financial stocks slumped from the continued fallout of the foreclosure crisis, tempering overall market gains.
The Dow Jones Industrial Average gained more than 65 points, after rising earlier above the blue-chip's index's closing high of the year of 11,205.
Kraft , DuPont and Walt Disney led the Dow higher, while Bank of America and JPMorgan fell.
The S&P 500 Index rose beyond 1,185, a recent resistance level, while the Nasdaq also advanced. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 19.
The positive tone to the market comes after stocks posted three weeks of gains, with the Dow rising about 11 percent since September.
In its morning research note, Schaeffer's Investment Research said hedge funds, not retail investors, were buying stocks. That's because the firm has noticed an uptick in purchases of index or exchanged-traded fund (ETF) put options "to hedge long positions that they are accumulating," according to Todd Salamone, senior vice president of research at the firm. A put option is a bet an underlying asset price will fall.
Buying by hedge funds can be bullish for stocks, Schaeffer said.
"The significance of who is buying is that when hedged hands are accumulating stocks, rallies tend to occur, and any sell-offs tend to be modest given they have put protection in place," Salamone wrote.
The dollar fell nearly a full percent against a basket of foreign currencies and remains near its 2010 low after the Group of 20 finance ministers agreed over the weekendto refrain from competitive currency devaluations. Analysts viewed the decision as a reason to bet the dollar would continue to fall. The yen, meanwhile, hit a 15-year high against the U.S. currency.
The falling dollar boosted materials stocks, as the sector rose more than 2 percent. The consumer discretionary and industrials sectors also were among the leading S&P 500 sectors.
Materials and commodities stocks on the rise included BHP Billiton , RioTinto , Freeport-McMoRan Copper & Gold and Schlumberger .
In financial news, the Wall Street Journal reported that Bank of America acknowledged some mistakes in foreclosure files.
Also, government owned mortgage financier Freddie Mac said that the foreclosure process in the U.S. is slowing.
Meanwhile, Federal Reserve President Ben Bernanke said U.S. banking regulators are reviewinghow large financial institutions conducted foreclosures and will publish a report on their findings in November. Bernanke spoke Monday morning at a conference sponsored by the Fed and the Federal Deposit Insurance Corp.
More positive news for some banks came from Goldman Sachs. Citigroup's shares rose after the brokerage added the bank to its "conviction buy" list, and said it is keeping its 12-month price target of $5.50 a share because of the bank's limited exposure to the mortgage-backed securities foreclosure crisis. Goldman also cited Citi's efforts to downsize and prospects for the government to shed its ownership stake in the company.
HSBC shares rose about 1 percent after Goldman reiterated the bank as a "conviction buy."
Meanwhile, Office Depot's shares jumped more than 7 percent after the office retailer announced CEO Steve Odland is stepping down. Odland, the company, and another executive settled charges with the Securities and Exchange Commission last week over improper disclosures. Rival Staples was also higher.
Lockheed Martin's shares rose after the defense contractor said its board approved a share buyback plan of up to $3 billion.
A flurry of corporate earnings are due Monday. RadioShack plunged more than 7 percent as investors focused on slowing sales in the electronics retailer's core business instead of a 23 percent jump in profit on stronger sales on soaring demand for smartphones. The electronics retailer was also helped by its relationship with T-Mobile as a postpaid wireless carrier and the addition of kiosks outside Target store. among those reporting numbers ahead of the bell.
Amgen and Texas Instruments report after-the-bell.
Later this week, Ford , Procter & Gamble , Motorola , Microsoft , Chevron and Merck report earnings.
So far, of the third of all S&P 500 companies that have reported earnings, 83 percent have beat estimates, according to Thomson Reuters.
Cable and satellite companies advanced after Barclays raised price targets for Comcast , DIRECTV , CablevisionSystems and TimeWarnerCable .
European shares finished higher with mining stocks leading the gains. Asian shares mostly advanced, but Japanese indexes saw declines.
In other markets, prices of gold and oil were sharply higher as the dollar sank.
On the economic front, existinghome sales jumped more than expected in September, rising for a second month to an annual rate of 4.53 million units. In August, sales were revised slightly down to a 4.12 million unit pace. Analysts surveyed by Reuters had expected existing home sales to rise about 4 percent.
A survey from the National Association for Business Economics showed that economists have become increasingly pessimistic on the outlook for the U.S. economy for the full year. Though a return to a shrinking economy is not expected, the survey found.
Other Fed officials due to speak Monday include St. Louis Fed President James Bullard at 1:30 p.m. and New York Fed President William Dudley at 4:30 p.m.
On the Calendar Next Week:
MONDAY: After-the-bell earnings from Harris, Amgen and Texas Instruments.
TUESDAY: S&P Case-Shiller Home Price Index, consumer confidence, two-year Treasury note auction; before-the-bell earnings from DuPont, Ford, Bristol-Myers Squibb, CIT Group, Johnson Controls, Kimberly-Clark, and Wyndham Worldwide; after-the-bell earnings from Broadcom, Dreamworks and Massey Energy.
WEDNESDAY: MBA mortgage applications, durable goods, new home sales, oil inventories, five-year Treasury note auction; before-the-bell earnings from Comcast, P&G, SAP, ConocoPhillips, Deutsche Bank, Dr. Pepper Snapple, General Dynamics, Owens Corning; after-the-bell earnings from Allstate, Owens Illinois.
THURSDAY: Jobless claims, natural gas inventories, 7-year Treasury note auction; before-the-bell earnings from Shell, AutoNation, Coca-Cola Enterprises, Duke Energy, Motorola, Potash, Starwood Hotels, and Thomson Reuters; after-the-bell earnings from Microsoft and MetLife.
FRIDAY: GDP, employment cost index, Chicago PMI, consumer sentiment, farm prices; before-the-bell earnings from Chevron, Merck, Cigna, Constellation Energy and Estee Lauder.
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