Stocks gained as investors continued to look for buying opportunities in oversold stocks, and as they took heart from stepped up M&A activity.
The Dow Jones Industrial Average gained more than 185 points after ending the week lower.
Among Dow components, Boeing , 3M and Microsoft, gained, while Pfizer and Bank of America slipped.
The S&P 500 and the Nasdaq also rose more than 1 percent. The CBOE Volatility Index, widely considered the best gauge of fear in the market, sank nearly 15 percent to below 21.
All key S&P 500 sectors gained, led by energy, technology and industrials.
As of Friday's close, the Dow had fallen 4.3 percent from its 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."
Analysts expect AT&T's plans to buy T-Mobile U.S. from Deutsche Telekom, which was subject to approval by regulators, will be positive for both AT&T and Deutsche Telecom. The merger would create the large wireless provider in the U.S.
AT&T shares gained slightly, while the German company’s shares rose as much as 14 percent following the news. Shares of Sprint sank. T-Mobile U.S. has not been able to compete with bigger U.S. companies.
Meanwhile, Verizon gained after S&P Equity upgraded the telecom company to "hold" from "sell," saying the AT&T/T-Mobile deal offers Verizon "opportunities to defend and perhaps increase its wireless market share in the near term."
Also on the M&A front, Charles Schwab said it will buy OptionsXpress in an all-stock deal for $17.91 a share or about $1 billion.
Commodities and currency prices fell back after news the U.S. Treasury planned to sell $142 billion in mortgage-backed securities, on the perception "easy money” was coming out of market and liquidity would suffer.
The price of gold dropped $4 an ounce, although it still traded higher, above $1,431 an ounce.The price of silver also fell.
Crude oil, which had traded higher, dropped $1 a barrel. Oil remain strong, however, amid persisting geopolitical concerns, including military action in Libyaover the weekend.