Stocks rose on Monday but were off their session highs as China's vow to allow a flexible yuan invigorated optimism in the global recovery and raised the sales outlook for U.S. multinational companies.
Energy and materials shares led the way up as commodities were boosted by the yuan move. Among U.S.-based multinationals, Caterpillar Inc gained 2.6 percent to $67.55, while Freeport-McMoRan Copper & Gold Inc jumped 6 percent to $69.88.
But Monday's gains moved the S&P 500 up more than 8 percent in the last 10 trading days, leaving the market vulnerable from a technical perspective.
Today's move is encouraging, but the market is very stretched in a near-term basis, said John Schlitz, chief market technician at Instinet in New York.
You've come into the week with most of the daily indicators very overbought, so we're kind of advising against chasing this strength. From a trading perspective it's too late to chase this move.
The Dow Jones industrial average <.DJI> gained 99.69 points, or 0.95 percent, to 10,550.33. The Standard & Poor's 500 Index <.SPX> rose 9.30 points, or 0.83 percent, to 1,126.81. The Nasdaq Composite Index <.IXIC> added 16.34 points, or 0.71 percent, to 2,326.14.
The S&P 500 broke through 1,130, the midpoint between its 2010 high- and low-points and a key technical retracement, but could face resistance above that level.
China's yuan surged the most since its revaluation in 2005, and global markets gained following the surprise weekend announcement by China's central bank that it would allow greater flexibility for the currency.
The move is expected to boost purchasing power and demand in China, the world's third largest economy. A higher yuan would also help temper inflation by pushing down import prices, which would also make foreign goods more affordable.
Companies that produce durable goods like Caterpillar will benefit from this, said Randy Frederic, director of trading and derivatives at Schwab Center for Financial Research in Austin, Texas.
The assumption is that the yuan maintains its increased valuation (against) the dollar in the long-term, so Chinese people will have the ability to purchase U.S. market goods.
Among the top performers, Dow component Alcoa Inc shot up 8.9 percent to $12.10, posting its strongest day so far in 2010.
Retailers, however, were hit on the expectation of higher costs on imports from China. The S&P retail index <.RLX> shed 0.4 percent.
An internal BP Plc document released by a U.S. lawmaker estimated that a worst-case scenario rate for the Gulf of Mexico oil spill could be about 100,000 barrels per day, far higher than the current U.S. government figure. BP's U.S.-listed shares slid 2.6 percent to $30.93.
(Additional reporting by Matt Lynley; Editing by Padraic Cassidy)