The Dow Jones industrial average (INDU) rose 214 points, or 1.9%, to end at 11,482.90. The S&P 500 (SPX) added 26 points, or 2.2%; and the Nasdaq (COMP) gained 47 points, or 1.9%.
The return of "Merger Monday" boosted investor sentiment. Google agreed to buy Motorola Mobility for $12.5 billion, the two companies said Monday.
"Companies have been hoarding cash since 2008 due to the uncertainty of the economic climate, so the fact that they're putting that cash to work is a huge positive," said Peter Tuz, president of Chase Investment Counsel. "It shows that managements are optimistic."
Investors welcomed news Monday morning that the Japanese economy contracted during the second quarter by much less than economists were expecting, following the devastating earthquake that hit in March.
Japan's gross domestic product shrunk by 0.3% last quarter, or 1.3% on an annualized basis.
The dollar was lower against the euro and the British pound, but it advanced slightly versus the Japanese yen.
Oil for September delivery rose $2.50 to settle at $87.88 a barrel.
Gold futures for December delivery added $15.40 to settle at $1,758 an ounce.
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