Stocks rose on Monday but were off early highs as investors digested China's vow to allow a flexible yuan currency.
The move reassured investors about the global recovery and improved the profit outlook for many U.S. multinational companies, though markets were off session highs after recent gains, leaving the market vulnerable from a technical perspective.
Energy, other materials and manufacturing shares were among the leaders as commodities were boosted by the yuan's move higher against the dollar. The Dow industrials jumped more than 140 points in the morning.
Caterpillar Inc gained 1.8 percent to $67.03, while Freeport-McMoRan Copper & Gold Inc jumped 5.1 percent to $69.26. Dow component Alcoa Inc climbed 7 percent to $11.89, posting its strongest day so far this year.
China's yuan surged the most since its revaluation in 2005 following a surprise weekend announcement by China's central bank.
This move is going to be good for global markets and help the bottom lines of companies with Chinese exposure, said Channing Smith, vice president of Capital Advisors in Tulsa, Oklahoma.
However, markets have had a good run and investors haven't forgotten that we face headwinds with Europe and the labor market.
The Dow Jones industrial average <.DJI> was up 50.71 points, or 0.49 percent, at 10,501.35. The Standard & Poor's 500 Index <.SPX> was up 3.83 points, or 0.34 percent, at 1,121.34. The Nasdaq Composite Index <.IXIC> was up 1.25 points, or 0.05 percent, at 2,311.05.
The S&P 500 briefly broke above 1,130, the midpoint between its 2010 high and low points and a key technical mark but was unable to hold the level. The index was up more than 8 percent in the past 10 trading days.
Tech shares weighed on the Nasdaq, briefly sending it into negative territory, with Google Inc falling 1.4 percent to $492.82 and Dow component Microsoft Corp off 1 percent at $26.17.
Retailers were also a drag on the expectation of higher costs on imports from China. Dow component Wal-Mart Stores Inc fell 1 percent to $51.06. The S&P retail index <.RLX> shed 0.9 percent.
It seems everything in the low-cost retailers is made in China, said Brian Gendreau, market strategist affiliated with Financial Network Investment Corporation in El Segundo, California.
In deal news, Biovail Corp agreed to buy Valeant Pharmaceuticals International in a complex deal worth roughly $3.3 billion engineered by the U.S. drug maker to preserve a lower tax structure. Biovail gained 12 percent to $16.41 on the New York Stock Exchange while Valeant was up 1.6 percent to $46.61.
BP's U.S.-listed shares slid 3.6 percent to $30.63 after an internal BP document released by a U.S. lawmaker estimated that a worst-case scenario for the Gulf of Mexico oil spill could be about 100,000 barrels per day.