Stocks rose on Monday as China's vow to allow a flexible yuan currency reassured investors about the global recovery and improved the profit outlook for many U.S. multinational companies.
Energy, other materials and manufacturing shares led the way up 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.
China's yuan surged the most since its revaluation in 2005 following a surprise weekend announcement by China's central bank.
But stocks were off session highs in early afternoon. The S&P 500 was up more than 8 percent in the past 10 trading days, leaving the market vulnerable from a technical perspective.
The market is very stretched on a near-term basis, said John Schlitz, chief market technician at Instinet in New York.
From a trading perspective it's too late to chase this move.
The Dow Jones industrial average <.DJI> added 65.60 points, or 0.63 percent, to 10,516.24. The Standard & Poor's 500 Index <.SPX> gained 5.43 points, or 0.49 percent, to 1,122.94. The Nasdaq Composite Index <.IXIC> rose 4.68 points, or 0.20 percent, to 2,314.48.
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.
China's decision is expected to boost purchasing power and demand in China. A higher yuan would also help temper inflation by pushing down import prices.
The Chinese have calculated that the global economy is recovering enough that they can decouple from the dollar, which could mean higher rates for us, said Patrick Watson, portfolio manager at Capital Cities Asset Management in Austin, Texas.
Now that the initial excitement has passed, investors are realizing that this could have negative consequences for us. Therefore, the markets are fading.
Among the top performers, Dow component Alcoa Inc shot up 7.1 percent to $11.90, posting its strongest day so far in 2010.
Retailers, however, were hit on the expectation of higher costs on imports from China. Wal-Mart Stores Inc fell 0.7 percent to $51.17. The S&P retail index <.RLX> shed 0.8 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.
BP's U.S.-listed shares slid 3.1 percent to $30.79 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.
(Editing by Kenneth Barry)