Buying accelerated after the Standard & Poor's 500 index, the market measure most often used by professional traders, broke through the high end of its recent range. Technical analysts see that as a bullish sign for the market.
The Dow Jones industrial average jumped 146 points to its highest close since May. Buyers were also encouraged by an announcement from a group of economists declaring that the most recent recession ended in June 2009.
The Fed meets Tuesday to discuss interest rates, and investors are hoping for a sign that the central bank might make more moves to keep rates low. There is a growing expectation that the Fed's rate-setting committee could relaunch programs to buy Treasurys and mortgage bonds in an effort to stimulate the economy. At the very least, it might hint at future plans.
"The Fed will hint at it, put it on the table, but not do anything," predicted Brian Gendreau, a market strategist at Financial Network Investment Corp.
A number of economic indicators have topped forecasts in recent weeks, propelling stocks higher, but the economy is far from strong. If the Fed starts buying bonds again it could drive interest rates lower, enabling companies and consumers to get cheaper loans. The Fed had a similar bond-buying program in place earlier this year.
In corporate news, IBM Corp. said it would buy data storage provider Netezza Corp. for about $1.7 billion in cash. Investors see acquisitions as a sign companies are more comfortable spending their spare cash built up during the recession to expand their businesses.
The Dow Jones industrial average rose 145.77 points, or 1.4 percent, to close at 10,753.62.
The Standard & Poor's 500 index rose 17.12, or 1.5 percent, to 1,142.71. The Nasdaq composite rose 40.22, or 1.7 percent, to 2,355.83.
The S&P 500 climbed solidly above the key technical level of 1,131, the high end of its recent trading range. The S&P briefly crossed that barrier on Friday for the first time since June 21, but not for long enough to convince analysts that the market had enough momentum to surge higher.
Many automatic buy and sell orders are set around market milestones such as these, and investors watch those levels closely for clues about which way the market may go next.
Five stocks rose for every one that fell on the New York Stock Exchange, where volume came to 955 million shares.
Investors have been encouraged by better economic reports this month, especially on jobs and manufacturing, to send stocks steadily higher in September. The Dow is up 7.4 percent in the month to date, the S&P 8.9 percent. The gains have defied predictions that September would follow a historical pattern of being dismal for stocks.
Investors also see hope in a softer stance in recent weeks by President Barack Obama's administration about tax and business-related programs. Keith Goddard, co-manager of the Capital Advisors Growth Fund, said a shift in policy could mean the Bush-era tax cuts will be extended. That would help dividend-paying stocks, which have been in "no man's land" recently because investors are uncertain the tax rate they'll have to pay on the dividends, Goddard said.
Extending the tax cuts and announcing other policies like a payroll tax holiday could be "worth a 10 percent move in the stock market," Goddard said.
Deal news sent IBM shares up $1.60, or 1.2 percent, to $131.79. Its acquisition target, Netezza, rose $3.67, or 14.9 percent, to $28.27.
Bond prices barely budged as investors await word Tuesday from the Fed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.71 percent from 2.74 percent late Friday.