The Dow rose 46 points and closer to crossing the psychological benchmark of 11,000 for the first time in 18 months. The growing confidence about the economy hurt demand for Treasurys and drove up interest rates. The yield on the 10-year Treasury note briefly rose to 4 percent, its highest level since June.
The government's report Friday that the economy posted its biggest job gain in three years in March raised expectations that a recovery is taking hold. Reports Monday of strong improvements in demand at services businesses and in the housing market added to an optimistic mood among traders.
The Labor Department said that employersin March. That was fewer than the 190,000 jobs economists forecast but there was more hiring by private employers and less by the government than economists had forecast. The stock market was closed for Good Friday so traders didn't have a chance to react to the report until Monday.
The unemployment rate remained at 9.7 percent for the third straight month. High unemployment keeps consumers from spending and hurts businesses like banks that are holding bad loans.
The Institute for Supply Management, a trade group, said that its index of activity in the nation's service industries rose in March to 55.4 from 53 in February. Economists had forecast a reading of 54. A rise in backorders signaled that businesses aren't keeping up with demand. The index covers industries including health care, retail and financial services.
Meanwhile, the National Association of Realtors said the number of people who agreed to buy a previously occupied home rose 8.2 percent in February from January. Signed contracts indicate what home sales will do in the coming months. Analysts said some of the gain came from buyers hoping to meet a tax credit that expires April 30.
The reports added to expectations that the economy is making strides. Major stock indexes have been climbing for 13 months with little interruption. Since February, stocks have drawn most of their gains from steady advances rather than the big bursts higher that occurred last year.
"The investors that have been buying over the past year are getting rewarded for their expectations that the economy is going to make a turn," said Alan Lancz, money manager at Alan B. Lancz & Associates in Toledo, Ohio.
According to preliminary calculations, the Dow rose 46.48, or 0.4 percent, to 10,973.55. The Dow came within 12 points of 11,000. It hasn't traded above that level since Sept. 29, 2008.
The broader Standard & Poor's 500 index rose 9.34, or 0.8 percent, to 1,187.44. The Nasdaq composite index rose 26.95, or 1.1 percent, to 2,429.53.
The Russell 2000 index of smaller companies rose 13.67, or 2 percent, to 697.65. Investors often pick up shares of small companies ahead of a rebound because they expect earnings will be quicker to improve than at bigger businesses.
The economic numbers pushed Treasury prices lower. The yield, which moves opposite its price, rose to 3.99 percent from 3.94 percent late Friday. It has not topped 4 percent since June. The bond market had a shortened trading day Friday.
An increase in interest rates could hurt the economy by raising borrowing costs. The yield on the 10-year note is tied to mortgages and other consumer loans.
John Apruzzese, partner and equity portfolio manager at Evercore Wealth Management in New York said the market's more subdued climb in the past two months could eventually bring some investors to put more money in stocks.
"The lower volatility is better. I think it makes the markets appear a little more sane," he said. "That's a trend that could go on for a while."
Apruzzese also said the increase in stocks is justified and that even the prospect of a gradual rise in interest rates from historic lows shouldn't disrupt a recovery.
He said higher rates would be a sign that the economy is getting stronger. During times of uncertainty many investors head for investments like Treasurys that can be safer but that offer weaker returns. When demand falls, rates increase.
The dollar fell against other major currencies, while gold rose.
One potential obstacle for the economy could come from a rise in energy prices. Gasoline and oil prices hit 18-month highs Monday after the reports on jobs, services and housing indicated that demand could be picking up as the economy improves.
Crude oil rose $1.75 to $86.62 per barrel on the New York Mercantile Exchange.
Energy stocks logged some of the day's biggest gains. Oil and natural gas producer Southwestern Energy Co. rose $1.26, or 3 percent, to $42.74. Oil and gas exploration and production company Pioneer Natural Resources Co. climbed $2.25, or 3.8 percent, to $61.40.
Apple Inc. rose $2.52, or 1.1 percent, to $238.49 after the company said it sold more than 300,000 iPads on the first day the touch-screen tablet devices became available.
More than two stocks rose for every one that fell on the New York Stock Exchange, where volume came to a light 902.4 million shares compared with 915.5 million Thursday.
Overseas, Japan's Nikkei stock average rose 0.5 percent. European markets remained closed for Easter.