Fears about the US economic recovery may have been overdone as strong house sales, construction and manufacturing data boosted stocks on Wall Street.
The reports, along with better-than-expected earnings and a forecast boost from Ford Motor, encouraged investors back into the market after last week’s drop.
Pending home sales in September jumped far more than expected, while construction spending in the month unexpectedly surged and a measure on manufacturing hit its best level since April 2006.
The Dow Jones Industrial Average rose sharply in the first hour but eased back during the day to finish 76.71 points, or 0.8%, higher at 9789.44, erasing nearly a third of the Dow's 249-point plunge on Friday.
Bank of America led the Dow's gainers, jumping 3.4%. DuPont rose 2.9% while Alcoa climbed 2.7%. Just two of the measure's 30 components were in the red recently: Intel and Verizon Communications. Verizon was down just 0.2%, while Intel slid 0.4%.
The economic reports, along with higher metals prices, helped the materials sector become the best-performing category in the S&P 500, which rose 0.7% to 1042.88. The materials sector was up 2.3%, followed by a 2.1% climb in its financials sector.
The more subdued Nasdaq Composite rose 0.2% to close at 2049.20.
Canadian stocks finished lower as commodity producers rose but technology leader Research In Motion fell 5% on an analyst downgrade.
Barrick Gold added 2.3% as bullion prices rallied. Suncor Energy climbed 0.7% as oil prices shot up after the US economic reports were released.
The S&P/TSX Composite Index was down 32.40 points, or 0.3%, at 10,878.
European stocks rose quickly off their lows despite an initial slump in bank stocks across the board.
The pan-European Stoxx 600 index was flat at 236.9. The FTSE 100 was up 0.3% at 5060.6, Frankfurt's DAX gained 0.3% to 5430.6 and Paris's CAC-40 was 0.4% higher at 3621.3.
The banking sector dipped following the bankruptcy filing of US small-business lender CIT Group, while UK banks declined as they negotiated with the British government on their futures.
Royal Bank of Scotland fell 5.5% after it confirmed it was near a deal with the UK government on the asset protection scheme, while Lloyds Banking Group, which was also bailed out by the government last year, fell 1.3%.
Both the banks are expected to divest some businesses for competitive reasons under a pending European Union ruling.
Commodities: Oil, gold up
Crude oil rose from a two-week low as manufacturing expanded in the US and the most China in 18 months, signalling energy demand is rising in the world’s two biggest oil-consuming countries.
Crude oil for December delivery rose $US1.13, or 1.5%, to $US78.66 a barrel in New York. Earlier, it touched a high of $US78.66 a barrel.
Gold futures gained the highest in a week as upbeat economic data put pressure on the dollar.
Gold for December delivery rose $US13.60, or 1.3%, to $US1054 an ounce in New York after reaching an intraday high of $US1063.40.
Currencies: Dollar, yen down
The dollar and yen declined ahead of this week’s Federal Reserve meeting as positive economic reports increased demand for higher-yielding assets.
The pound dropped for the first time in six days versus the euro on bets the Bank of England will extend its bond-buying program this week.
The dollar slid 0.7% to $US1.4823 per euro, from $US1.4719 on Friday. It touched $US1.4683 on October 29, the strongest level in more than two weeks.
The euro appreciated 1.3% to ¥134.26, from ¥132.61. The dollar advanced 0.5% to ¥90.53, from ¥90.09.
Canada’s dollar advanced from the lowest level in a month against its US counterpart after equities and commodities.
The Canadian currency appreciated 1% to $C1.0741 per US dollar, from $C1.0848 on Friday. One Canadian dollar purchases 93.10USc.