Stocks pared their gains in the final hour of trading but still kicked off the first day of May on a positive note, with the Dow hitting its best closing high since December 2007, fueled by a better-than-expected manufacturing report.
The Dow Jones Industrial Average gained 65.69 points, or 0.50 percent, to finish at 13,279.32, the best level in more than four years. The Dow was up 125 points in its intraday high. BofA and Alcoa led the gainers.
The S&P 500 climbed 7.91 points, or 0.57 percent, to end at 1,405.82. The Nasdaq rose 4.08 points, or 0.13 percent, to close at 3,050.44. The CBOE Volatility Index, widely considered the best gauge of fear in the market, slipped below 17.
All 10 S&P sectors ended in positive territory, led by energy and financials.
“Contrary to the saying ‘sell in May and go away,’ overall, we’re pretty bullish right now and it’s due to the lowered expectations as a lot of people doubt this market," said Joe Bell, senior equity analyst at Schaeffer's Research. "Europe and China remain wildcards, but most of their problems have been baked in.”
Pfizer topped earnings expectationsas cost controls helped offset falling sales of its cholesterol drug Lipitor, which now faces competition from generic alternatives. Earlier this month, the drugmaker agreed to sell its baby formula division to Nestle for $11.85 billion.
And oil producer BP reported a bigger-than-expected earnings decline despite an increase in crude prices, as production fell after it was forced to sell fields to pay for the oil spill.
Of the 321 S&P companies that have reported earnings so far, almost 71 percent have topped expectations, while nearly 18 percent have missed, according to data from Thomson Reuters.
Broadcom , CBS , Chesapeake and Motorola Mobility are among notable companies slated to post earnings after-the-bell tonight.
Chesapeake surged to lead the energy sector after the firm announced it would replace CEO and founder Aubrey McClendon with a non-executive chairman in the near future and will also end a controversial program a year-and-a-half before the program was scheduled to close.
Other energy companies climbed as crude oil jumped to a one-month high, settling above $106 a barrel, while natural gas soared more than 3 percent. Nabors Industrials and Hess also rallied sharply.
Delta Airlines announced that it would buy a Pennsylvania oil refinery from ConocoPhillipsfor $150 million.
P.F. Chang's China Bistro surged after private equity firm Centerbridge Partners said it will acquire the restaurant chainin a deal worth $1.1 billion, a 30 percent premium to the stock's Monday close.
Also on the M&A front, Collective Brands rallied after Wolverine Worldwide , Blum CapitalPartners and Golden Gate Capital said they will buy the footwear retailer for about $1.23 billion.
Bank of America said it is planning to slash up to 400 positions, according to the Wall Street Journal, citing sources, adding that the sale of the financial giant's wealth-management operations overseas would reduce up to 2,000 jobs.
Ford and GM both logged a single-digit percent declinein April. Meanwhile, rival Toyota posted a 11.6 percent monthly gain, beating estimates.
Sears surged to lead the S&P 500 gainers after the retailer handed in a better-than-expected quarterly outlook.
Meanwhile, Herbalifeplunged as much as 21 percentafter short-seller David Einhorn questioned why the firm marketer had stopped disclosing details about its distributors.
A few minutes before the market closed, sources told CNBC that Facebook is ready to launch its IPO road show as early as Monday. The stock could start trading as early as May 16 or 17.
On the economic front, factory activity in the U.S. posted a surprising gain in April, rising to 54.8 from 53.4 in March, according to the Institute of Supply Management. Economists had expected a reading of 53.0.
And construction spending edged up 0.1 percent to an annual rate of $808.07 billion in March, according to the Commerce Department.
Most markets in Europe and several major Asian markets were closed on Tuesdayto mark the May Day holiday and trading could remain thin ahead of Thursday's ECB policy meeting and Friday's non-farm payroll report. The London Stock Exchangewas the only major market that was open in Europe.
China's factory activity hit a 13-month high in April, suggesting the world's second-largest economy may be slowly recovering from its decline.
—Follow JeeYeon Park on Twitter: @JeeYeonParkCNBC—
Coming Up This Week:
WEDNESDAY: Weekly mortgage apps, Challenger job-cut report, ADP employment report, factory orders, oil inventories, Pepsi shareholders mtg; Earnings from Comcast, Time Warner, UBS, Barrick Gold, Clorox, CVS, Marathon Oil, MasterCard, Dreamworks Animation, Green Mountain Coffee, Sunoco, Transocean, Visa, Whole Foods
THURSDAY: Jobless claims, productivity and costs, ISM non-mfg index, chain-store sales, Nokia annual mtg, Verizon shareholders mtg; Earnings from GM, Kraft, AIG, LinkedIn
FRIDAY: Government non-farm payrolls, Alcoa shareholders mtg, Berkshire shareholders mtg; Earnings from Berkshire Hathaway
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