Energy and materials stocks led the market. The major indexes rose 2 percent and the Dow jumped 200 points for the second time in three days and reached its highest level in 13 months.
News that the Group of 20 countries will keep their economic stimulus measures in place signaled to investors that rates will remain low. With U.S. rates near zero, the G-20 news lessened demand for the dollar.
Even as investors are waiting for more signs that the economy is recovering, they've been focusing on the dollar's moves when they make their buy and sell decisions. Investors around the world see the dollar as weaker than other currencies, and so they're using it for what's known as "carry trade," to finance purchases of investments in other countries. That trend takes the dollar down further when those purchases are made.
But some analysts are questioning the stock market's moves given the still-weak economy, and warn that stocks and other investments could suffer big losses if the dollar were to turn higher.
"It feels like it's on fumes," said Sean Simko, head of fixed income management at SEI Investments in Oaks, Pa., referring to the market's advance. "Although fundamentals are catching up, they're not caught up."
He said the dollar's drop and the current surge in stocks and commodities are making it hard for investors to get a clear picture of how fast the economy is rebounding.
Still, many investors like a weaker dollar because it helps U.S. exporters by making their goods cheaper to overseas buyers and giving the companies a boost when they convert profits from abroad to dollars.
The ICE Futures U.S. dollar index, which measures the greenback against a basket of foreign currencies, fell to its lowest level in 15 months. The dollar rose last year and early this year but the index has been sliding for the past eight months since major stock indicators bounced off 12-year lows. Investors, although they've been basing most of their buy or sell decisions on the economy, have also been following a pattern of funneling money into stocks when the dollar weakens and pulling it out when the currency rises.
Commodities prices, meanwhile, tend to rise when the dollar is down, so gold topped $1,100 an ounce. Crude oil rose $2 to settle at $79.43 per barrel on the New York Mercantile Exchange, helped in part by Tropical Storm Ida, which threatened the Gulf of Mexico.
Energy and materials stocks rose along with commodities prices, and investors' enthusiasm for those stocks spilled over to other industries.
Brian Battle, vice president of trading at Performance Trust Capital Partners in Chicago, said the strength of the carry trade is giving an artificial lift to a range of assets, including stocks.
"There's cheap money that's going to be pumping its way into the system," he said. "That money is finding is home in the currency and commodity markets."
According to preliminary calculations, the Dow rose 203.52, or 2 percent, to 10,226.94, its highest finish since Oct. 3, 2008. The index rose as high as 10,228.23, topping its previous 12-month trading high of 10,119.46 set last month.
The broader Standard & Poor's 500 index rose 23.78, or 2.2 percent, to 1,093.08, its sixth straight advance. The Nasdaq composite index rose 41.62, or 2 percent, to 2,154.06.
Five stocks rose for every one that fell on the New York Stock Exchange, where volume came to 1.2 billion shares compared with 1.1 billion Friday.
Bond prices mostly rose, pushing yields lower. The yield on the benchmark 10-year Treasury note slipped to 3.48 percent from 3.50 percent late Friday.
The dollar's slide also came as the International Monetary Fund said the dollar remained "on the strong side." That added to selling pressure.
Jason Pride, director of research at Haverford Investments outside Philadelphia, isn't troubled by the slide in the dollar because he sees it as another sign that fear in the market is easing after the slide of the past two years. Investors rushed into the dollar as they sought the safest assets.
"As the economy gets back to normal from what were very dire circumstances earlier this year the equity markets are going to be moving up and the dollar should be falling," he said.
"You're seeing a lot of pieces move off each other and the dollar is driving a lot of it," he said.
Retailers had some of the biggest gains in the market's broad advance. Abercrombie & Fitch Co. rose $2.58, or 7.4 percent, to $37.59 after several analysts said international growth would boost growth at the teen apparel retailer. The company is slated to post its fiscal third-quarter numbers Friday.
Investors are looking for any insight into how much consumers are spending as the holidays approach. J.C. Penney Co., Macy's Inc. and Wal-Mart Stores Inc. are among the stores expected to post quarterly results this week.
Among enegy stocks, Exxon Mobil Corp. rose 69 cents to $72.85. Gold producer Newmont Mining Corp. rose $1.52, or 3.1 percent, to $50.56 and hit a 12-month high.
The Russell 2000 index of smaller companies rose 11.96, or 2.1 percent, to 592.31.
Overseas, Britain's FTSE 100 rose 1.8 percent, Germany's DAX index jumped 2.4 percent, and France's CAC-40 rose 2.1 percent. Japan's Nikkei stock average rose 0.2 percent.