U.S. stocks advanced on Monday, with the S&P 500 on track to snap a three-day sell-off, as a weak U.S. dollar and better-than-expected home sales data encouraged investors.

Sales of previously owned U.S. homes rose at a faster-than-expected pace to the highest in more than 2-1/2 years, according to the National Association of Realtors. The Dow Jones U.S. Home Construction Index <.DJUSHB> gained 0.3 percent.

The U.S. dollar index <.DXY> slid 0.7 percent following comments from St. Louis Federal Reserve President James Bullard, who said on Sunday that the Fed should extend its mortgage-related assets purchase program to give policy-makers more flexibility.

The home sales complement a strong upward trend we are seeing now ... there are a lot of people still on the sidelines to pile in because we never had what's called a technically good bottom since March (lows) and this will continue the rally, said Paul Lange, vice president of services at Team Trading LLC in New York.

The Dow Jones industrial average <.DJI> was up 131.20 points, or 1.27 percent, at 10,449.36. The Standard & Poor's 500 Index <.SPX> was up 15.27 points, or 1.40 percent, at 1,106.65. The Nasdaq Composite Index <.IXIC> was up 29.42 points, or 1.37 percent, at 2,175.46.

Among home builders, D.R. Horton rose 2 percent to $10.58 and MDC Holdings Inc gained 1.2 percent to $30.98.

Energy shares got a boost as January crude futures gained 1.3 percent, or 98 cents, to $78.45 a barrel, with Dow component Chevron Corp up 2.9 percent at $78.99.

On the Nasdaq, News Corp rose 0.4 percent to $12.03 after sources said Microsoft Corp has talked about a deal in which News Corp, which owns The Wall Street Journal and the New York Post, would get paid to take its news websites off Google Inc .

Microsoft added almost 1 percent to $29.91. Google climbed 2.1 percent to $582.65.

The Morgan Stanley Healthcare Payor index <.HMO> gained 3.6 percent, while the AMEX Pharmaceutical index <.DRG> was up 1.1 percent, buoyed by news that U.S. President Barack Obama's healthcare reform plan cleared an important Senate hurdle over the weekend. But lawmakers warned of challenges ahead in winning support for passage, even among Obama's fellow Democrats.

On the downside, Ciena Corp shed 9.5 percent to $11.91 after it agreed to buy the optical networking and ethernet equipment businesses of bankrupt Nortel Networks


(Reporting by Angela Moon; Editing by Jan Paschal)