Stocks shot higher as investors grew more confident that the Federal Reserve will raise interest rates only slightly at its meeting this week.
The Dow Jones industrial average rose 102.59, to 10,655.15.
Broader indicators also closed higher. The Standard & Poor's 500-stock index rose 16.04, to 1331.35, and the Nasdaq composite index gained 49.79 to close at 2602.44, boosted largely by software makers and a recovery among Internet stocks.
Volume remained relatively light, a sign that many traders were unwilling to make big commitments in advance of the Fed's Open Market Committee meeting on Tuesday and Wednesday. New York Stock Exchange trading volume rose to 652.9 million shares, from 623.5 million on Friday.
The Fed is widely expected to increase short-term interest rates by a quarter of a percentage point to slow the economy and prevent inflation from accelerating. Analysts say that increase, which would be the first in more than two years, is already reflected in stock prices.
"The rate hike is almost history, and now investors are thinking it's a great time to buy," said Alfred E. Goldman, director of market analysis at A.G. Edwards & Sons Inc. in St. Louis.
Today's rally was a "relief-type situation," said John Lynch, director of investment strategy at IJL Wachovia in Charlotte. "A quarter-point increase is not something that will grind the economy to a halt."
Last week, the Dow lost 303 points, or 2.7 percent, amid fears that the Fed would raise interest rates by a larger amount.
Further illustrating the strength of the U.S. economy, the Commerce Department reported today that consumer spending rose 0.6 percent in May, outpacing personal income, which rose 0.4 percent. The continued rapid rise in spending, which boosts corporate profits, also increases fears about inflation.
Investors are already looking past the expected quarter-point rate boost to gauge whether the Fed will make a series of increases or just one, Lynch said. "I don't think a series of rate hikes is necessary, as the global economy still has a way to go till it hits recovery," he said.
A rally in the bond market also boosted stocks. As the bellwether 30-year Treasury rose in price by $7.19 per $1,000 in face value, its yield fell to 6.09 percent, from 6.15 late Friday.
The blue-chip index was led higher today by the financial sector, which is most vulnerable to fluctuations in interest rates. J.P. Morgan, up 5 1/2 at 134-1/16, and American Express, up 2-13/16 at 125 1/4, were among the biggest Dow gainers.
Cyclical stocks, or economically sensitive companies, also rose, led by Dupont, up 1 3/8 at 67-11/16, and construction-equipment maker Caterpillar, up 2 1/8 at 60 3/4.
Internet stocks and software makers led the Nasdaq. Yahoo was the biggest gainer, up 9 5/8 at 156 1/2. Microsoft rose 1-13/16, to 86 3/4.