Stocks pared gains but remained higher Monday as the weak dollar boosted materials, but big banks slumped following the continued fallout of the foreclosure crisis, tempering overall market gains.
The Dow Jones Industrial Average was up more than 25 points, after rising earlier above the blue-chip index's closing high of the year of 11,205.
DuPont , Alcoa , and Kraft 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.
"I think the big news is investors are slowly taking the double-dip deflation story off the table," said Jack Ablin, chief investment offier at Harris Private Bank. "If policy makers are successful at regenerating inflation, than risk-oriented invetments should do well."
In a 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 remained 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.
Meanwhile, gold rose about 1 percent near $1,336 an ounceand palladium hit its highest in nearly a decade. And oil jumped near $82 a barrel, gaining for a second session.
The falling dollar boosted materials. The consumer discretionary and industrials also were among the leading S&P 500 sectors.
Materials and commodity stocks on the rise included BHP Billiton , RioTinto and Freeport-McMoRan , all up more than 2 percent each.
Financials were the weakest performing sector Monday, but not all bank stocks were lower, which Ablin at Harris Bank takes as a good sign.
"We’re starting to see investors begin to differentiate bwteen the winners and the losers and the finance sector, they aren’t all trading collectively as they once were," Ablin said.
Bank of America slipped after the bank acknowledged some mistakes in foreclosure filesas it begins to resubmit documents in 102,000 cases, according to the Wall Street Journal.
Rivals JPMorgan and Wells Fargo were also lower.
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, at a conference sponsored by the Fed and the Federal Deposit Insurance Corp.
Meanwhile, Citigroup shares climbed after Goldman Sachs 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.
And HSBC rose about 1 percent after Goldman reiterated the bank as a "conviction buy."