Stocks jumped Monday, with the Nasdaq and S&P 500 pushing back into positive territory for the year, as investors welcomed AIG's $35 billion asset sale and a pair of mergers in the pharmaceutical sector.
Signs that a Greek bailout package is in the works also came into play.
The Dow Jones industrial average (INDU) gained about 79 points, or 0.8%. The S&P 500 index (SPX) added 11 points, or 1%, and the Nasdaq composite (COMP) jumped 35 points, or 1.6%.
Both the S&P 500 and the Nasdaq ended in positive territory for the year for the first time in over a month.
Stocks rallied Monday, the first day of March, as investors dug back in after last week's retreat. Stocks have been choppy and volatile this year in the aftermath of 2009's big rally.
Stocks jumped last year after trillions of dollars in fiscal and monetary stimulus were injected into the financial system. But optimism about a 2010 economic recovery also fueled the advance.
However, mixed signals about the economy this year have given investors pause as they look for clearer indications that a recovery is not only in place, but can take on a life of its own once the government stimulus fades out.
Concerns that Greece's debt crisis could spread to the rest of Europe and that China is seeking to pull back its expansion all dragged on stocks earlier in the year. But stocks have risen in two of the last three weeks.
"There are a few positives today, with some of the deal news, but there's still uncertainty about the economy," said Gary Webb, CEO at Webb Financial Group.
"It's going to be a lot more volatile this year," he said. "We saw a correction through early February and now we're seeing a rebound. I think we're going to continue to see that seesaw effect throughout this year."
February auto and truck sales are due throughout the day Tuesday. Toyota Motor (TM) is expected to take a hit in the aftermath of its recall of millions of vehicles plagued with safety programs.
AIG: AIG said Monday that it was selling its Asian life insurance business to Britain's Prudential PLC in a deal worth $35.5 billion. The deal includes $25 billion in cash, $16 billion of which the company has earmarked to pay back the government and taxpayers.
Troubled AIG (AIG, Fortune 500) has avoided collapse by borrowing about $132 billion from the government since 2008.
On Friday, the company reported a fourth-quarter loss of $8.9 billion, due mostly to costs connected to selling off large stakes in its insurance businesses.
Shares gained 4% Monday.
Deal news: Japanese drugmaker Astellas Pharma made an unsolicited $3.5 billion bid for OSI Pharmaceuticals (OSIP), maker of the blockbuster Tarceva cancer drug. The deal represents a 40% premium over OSI's Friday closing price.
OSI said it would review the offer and that shareholders should make no move as of yet. OSI shares rallied 52% Monday.
Over the weekend, German pharmaceutical company Merck KGaA said it would buy U.S.-based Millipore (MIL) for $7.2 billion. Millipore is a life sciences tools maker. Millipore shares gained 11.1% Monday.
MSCI (MXB) said it would buy risk advisory firm RiskMetrics Group (RISK) in a $1.55 billion cash-and-stock deal. MSCI shares fell 4% while Risk shares gained 13%.
SanDisk (SNDK) jumping 12%, after the flash memory card maker raised its first-quarter sales outlook to between $925 million and $1 billion.
Market breadth was positive. On the New York Stock Exchange, winners topped losers three to one on volume of 967 million shares. On the Nasdaq, advancers beat decliners by more than three to one on volume of 2.46 billion shares.
Economy: A busy day for economic news included readings on manufacturing, construction and income and spending.
The Institute for Supply Management's manufacturing index fell to 56.5 in February from 58.4 in January, surprising economists who thought it would only fall to 57.9. Any reading over 50 signifies expansion in the sector.
Construction spending declined 0.6% in January after falling 1.2% in the previous month, the government reported. The drop was in line with estimates.
Personal income rose 0.1% in January after gaining 0.3% in December. Economists expected income to climb 0.4%. Personal spending jumped 0.5% after rising 0.3% in the previous month. Economists thought spending would increase 0.4%.
Greece: Amid ongoing worries about Greece's ballooning deficit, Olli Rehn, the European Union's financial affairs commissioner, urged the nation to make more budget cuts. Greece has already announced plans to raise the retirement age and freeze wages, but Rehn said such moves are not enough.
Greece's finance minister, Giorgos Papaconstantinou, said the government would do "whatever it takes" to cut the deficit.
World Markets: In overseas trading, European markets rallied, with the London FTSE rising 1%, the French CAC 40 gaining 1.6% and the German DAX advancing 2%. Asian markets ended higher.
The dollar and commodities: The dollar gained versus the euro, the yen and the U.K. pound.
U.S. light crude oil for April delivery fell 96 cents to $79.66 a barrel on the New York Mercantile Exchange.
COMEX gold for April delivery eased 60 cents to settle at $1,118.30 per ounce.
Bonds: Treasury prices fell, raising the yield on the 10-year note to 3.61% from 3.59%. Treasury prices and yields move in opposite directions.