Wall street kicked off the new quarter with good gains on the back of positive ISM factory index data and better expectations out of the US jobs market data this week.
But analysts expected the market to become more volatile as the week progresses with the crucial jobs report set for release on Friday, a day after the July 4 holiday, when US markets will be closed.
All but one of the top 10 S&P 500 sectors rose in Monday's broad advance, extending the S&P 500's 12.6 percent gain in the first six months of 2013. It was the strongest first half of a year since 1998.
Data from the Institute for Supply Management showed US manufacturing activity grew in June, rebounding from an unexpected contraction in May. Construction spending neared a four-year high in May, according to the Commerce Department.
"People saw ISM was stronger and slightly higher than consensus and decided to run with it," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.
Reallocation of cash from bonds into stocks as the new quarter begins could be behind the strength the market showed even before the data, Forrest said.
Investors pulled USD 23.3 billion out of bond funds during the week to last Wednesday, the biggest outflow since records started in 1992, according to data from EPFR Global and Bank of America Merrill Lynch.
The Dow Jones industrial average was up 114.36 points, or 0.77 percent, at 15,023.96. The Standard & Poor's 500 Index was up 13.44 points, or 0.84 percent, at 1,619.72. The Nasdaq Composite Index was up 39.34 points, or 1.16 percent, at 3,442.59.
Strength in overseas stock markets added to the positive tone. An index of Chinese shares rose 0.8 percent after Beijing policymakers assured investors that there was ample liquidity in the system.
This year's gains have been driven partly by the Federal Reserve's bond-buying policy, which helped lift the Dow industrials and the S&P 500 to record closing highs in late May. The rally was interrupted last month on concerns about the future of the Fed's stimulus program, which triggered a selloff in stocks. June was the S&P 500's first negative month since October.
While Wall Street showed some signs of stabilization last week as comments from Fed officials assured traders the US central bank's stimulus program would not be slowed imminently, the eventual transition to a no-stimulus environment is expected to result in further volatility.
"I still believe the market is trying to figure out how to price in slightly higher interest rates, even if rate increases from the Federal Reserve are still at least a year away," said Randy Frederick, managing director of active trading and derivatives at the Schwab Center for Financial Research in Austin, Texas.
Frederick added that since the monthly nonfarm payrolls data will coincide with the weekly jobless claims report this week, investors should "be prepared for a volatile move an hour before market open" on Friday.
In corporate news, Jefferies & Co raised its price target on Tesla Motors' stock to USD 130 from USD 70, saying the electric car maker was on track to deliver 21,000 Model S cars in 2013. Tesla's stock shot up 8.7 percent to USD 116.68.
Onyx Pharmaceuticals Inc surged 50.7 percent to USD 130.82 after the company said it was considering selling itself, though it had rejected a roughly USD 10 billion bid from Amgen Inc . Canaccord Genuity raised its price target on the stock to USD 140 from USD 105.
In other pharmaceutical-related news, Insmed Inc tumbled nearly 20 percent to USD 9.59 after its experimental lung infection drug fared no better than a competing one developed by Novartis AG in a lung function test.
Games publisher Zynga Inc could replace its Chief Executive Mark Pincus with Microsoft Corp executive Don Mattrick, possibly as early as late Monday, according to a report by AllThingsD. Zynga shares soared 10.4 percent to USD 3.07.
READ MORE ON US market, US manufacturing data, S&P 500, ISM data, jobs numbers, nonfarm payrolls, Bank of AMerica, Dow Jones Industrial Average
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