Stocks finished up 1.5 percent or higher, sending the Dow back above 12,000, lifted by AT&T's $39 billion planned purchase of Deutsche Telecom's T-Mobile USA and investors who found buying opportunities in stocks they viewed as oversold.
The Dow Jones Industrial Average rose 178.01 points, or 1.5 percent, to close at 12,036.53. The blue-chip index finished lower last week, but it has gained 423.23 points, or 3.6 percent, in the last three sessions.
Among Dow components, Boeing, Alcoa and Exxon Mobil gained, while Pfizer lagged.
The S&P 500 rose 19.18 points, or 1.5 percent, to close at 1,298.38. For the last three sessions, the broad market index gained 41.50 points, or 3.3 percent. The Nasdaq rose 48.42 points, or 1.83 percent, to close at 2,692.09. The tech-heavy index gained 75.27 points or 2.9 percent, in the past three sessions.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, plunged more than 15 percent to below 21. (Read more: Is VIX Being Tricky or Is Worst Over for Stocks?)
Most key S&P 500 sectors gained, led by energy, industrials and technology. Telecom fell.
"You read a headline like $39 billion....this is a headline that can create a bounce," said Dan Cook, CEO of IG Markets in Chicago, referring to AT&T's plans to buy T-Mobile USA. While there are "so many hurdles in a deal like that, for today, it cheers markets and gives (investors) something to focus on other than crisis in Japan, crisis in the Middle East."
But, Cook said, the market remains very "event-driven," and short-term trading is in the driver's seat. That's why there have been such big swings up as well as down over the last couple weeks, as traders try to assess the meaning of fast-moving geopolitical events, he said.
"We could be down 200 tomorrow," Cook said. "There's no good long-term trend to really stick to."
Traders also said today's move reflects the sharp decline stocks took last week as the nuclear crisis in Japan was unfolding.
As of Friday's close, the Dow had fallen 4.3 percent from its 2011 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."