"Expectations for a rate cut from the Federal Reserve Open Market Committee tomorrow are keeping a floor under the financials," said Frederic Ruffy, analyst at Optionetics.
Up about 130 points earlier on, the Dow Jones Industrial Average finished 101.5 points, or 0.7%, at 13,727.0, with 27 of the blue-chip index's 30 components closing ahead, led by Caterpillar Inc. , up 3.2%.
The Dow's financial shares also gained, with J.P. Morgan Chase up 2.9%, and Citigroup Inc. up 1.3%.
Elsewhere on the Dow, shares of McDonald's Corp. gained 2.9% after the fast-food chain reported an 8.2% jump in global sales at restaurants open a year or more. .
Blue-chip laggards included AT&T Inc. , which slid 1.5%, Boeing Co. , which closed 0.6% lower, and Pfizer Inc. , off 0.1%.
The S&P 500 gained 11.3 points, or 0.8%, to 1,515.96 and the Nasdaq Composite rose 12.79 points, or 0.5%, to 2,718.95.
On the New York Mercantile Exchange, January-dated light crude oil fell 42 cents to close at $87.86 a barrel. .
Elsewhere on the NYME, gold futures rose, with the contract for February delivery gaining $13.3 to end at $813.5 an ounce. .
Volume on the New York Stock Exchange neared 1.2 billion shares, and advancing stocks outpaced those falling by a nearly 2-to-1 ratio. On the Nasdaq, 1.8 billion shares exchanged hands, and advancers topped decliners roughly 8 to 7.
The major indexes extended their gains after the National Association of Realtors reported its gauge of future home sales increased 0.6% in October, the second consecutive rise.
"The data are of interest, but ahead of tomorrow's Fed decision and more important economic reports later in the week, there won't be much market reaction," said analysts at Action Economics.
Investors looked ahead to Tuesday's rate decision by the Federal Reserve, debating whether to expect a quarter-point or half-point reduction.
"Most people" expect a 25-basis point cut, said Chuck Lieberman, chief investment officer at Advisors Capital Management. .
If expectations of another Fed rate cut are realized, it would be the third meeting straight in which the central bank has opted to make such a move. .
Shares of MBIA Inc. ended up 13.2% after the bond insurer said it would get a $1 billion investment from private-equity firm Warburg Pincus in an effort to shore up its capital to preserve its AAA rating. .
Swiss banking giant UBS warned it would write down the value of its subprime mortgage holdings by another $10 million, potentially wiping out its profits for the year.
At the same time, the bank said it would get a capital injection of $11.5 billion from the government of Singapore and an unnamed investor in the Middle East.
Biotechnology company MGI Pharma Inc. has agreed to be acquired by Japanese health-care firm Eisai Co. for $3.9 million in a deal expected to be completed during the first quarter of 2008. .
Other developments Monday had Blackstone Group LP distancing itself from a report in the Daily Telegraph that it is planning a potential break-up bid for U.K. mining company Rio Tinto PLC , saying it is not involved in the bidding process.
Shares of Blackstone advanced 6.9%, while those of Rio Tinto climbed 2.1%.
European shares closed higher, with construction firms drawing a lift from Lafarge's deal-making plans. .
Asian stocks fell, with markets in Hong Kong leading the region lower. .
By Kate Gibson