"The financials are leading the bounce on the government's backstop for Citi," said Marc Pado, U.S. market strategist at Cantor Fizgerald.
The $326 billion plan to save Citi follows intense weekend negotiations that has the government backing as much as $306 billion of the bank's troubled assets and leaves it in charge of executive bonuses. .
The Dow Jones Industrial Average gained 287.37 points to 8,333.79 with all 30 of its components posting mid-morning gains, led by Citi , 61.3%.
The S&P 500 climbed 31.76 points to 831.79, and the Nasdaq Composite added 53.95 points to 1,438.3.
Telecommunication services, financials and materials fronted gains among all 10 of the S&P's 10 industry groups.
Volume on the New York Stock Exchange topped 431 million, with advancers overtaking decliners 4 to 1. On the Nasdaq, almost 227 million shares traded, and advancers beat decliners more than 3 to 1.
Equities further added to their gains after the National Association of Realtors reported the resale of single-family residences fell 3.1% in October to 4.98 million, just under the 5 million expected by analysts surveyed by MarketWatch.
A late-hour rally pushed U.S. stocks to huge gains Friday, with the Dow Jones Industrial Average jumping 494 points, the Nasdaq Composite rising 68 points, and the S&P 500 rising 47 points. The surge higher came after news leaked that President-elect Barack Obama would nominate New York Federal Reserve President Timothy Geithner for Treasury Secretary.
"The importance of this announcement is two-fold. First, with Paulson publicly stating that he is not interested in pursuing the second $350 billion, it is putting the pressure on the Obama administration to get the process moving as quickly as possible to get these funds. Second, Geithner was a key government official in the financial rescue plan, which means he has intimate knowledge of what needs to be done," said Pado.
Obama's economic team was due to be officially announced later Monday.
Target Corp. late Friday announced it rejected a proposal by activist investor Bill Ackman to spin off real-estate holdings.
Campbell Soup Co. -- which traditionally benefits in times of a recession -- fell 5.1% after the processed food maker said its fiscal first-quarter net income declined nearly 4%.
After the close, Hewlett-Packard Co. and Analog Devices Inc. are scheduled to report earnings.
Oil futures gained $2.39 to $52.52 a barrel. .
Overseas, the FTSE 100 surged 4.5% in London. Asia stocks weren't as strong, with Hong Kong's benchmark Hang Seng Index dropping 1.35%. Tokyo was closed.
By Kate Gibson