According to preliminary figures, the Dow Jones industrial average rose 176.53 to 10,038.65, climbing above the 10,000-mark that it fell below Friday for the first time in more than 10 months.
The Dow was up more than 294 points in late afternoon trading.
The Nasdaq composite index, which fell 124 points earlier today, finished the day only slightly lower.
In recent weeks, much of the stock market, especially blue-chip shares, has been battered by fears that the Federal Reserve will raise interest rates to reduce inflationary pressures on the robust U.S. economy.
But Monday, investors brushed such concerns aside and took advantage of the cheap prices available as a result of the sharp decline in financial services, retail and drug stocks over the last few weeks.
Today was a mirror image of the dismal performance on Friday that left investors trembling, said Alan Ackerman, senior vice president at Fahnestock & Co. But today it reversed itself and there was a genuine sigh of relief in the market.
Still, analysts warned that the Dow's dramatic rise might be short-lived, and many expect the index to fall back into its volatile pattern in coming weeks, as investors continue to shift money into companies with the best chance for rapid earnings growth.
That should bode well for the NASDAQ, which comprises many companies that are in the forefront of the new economy.
Investors are asking `Where can I find earnings growth? said Alan Skrainka, chief market strategist at Edward Jones of St. Louis. "They know that they can find such growth in technology, Internet and telecom stocks. Those are outperforming the old economy stocks."
Brian G. Belski, chief investment strategist at George K. Baum & Co., in Kansas City, Mo., added that "the momentum of this market still rests on the shoulders of the NASDAQ. This is just a one-day flip from NASDAQ into Dow."
The volatility in the U.S. stock market prompted selling on financial markets overseas. Japan's Nikkei stock average fell 0.49 percent, Germany's DAX index fell 1.95 percent, Britain's FT-SE 100 dropped 1.97 percent, and France's CAC-40 declined 1.38 percent.