Stocks rose on Monday, pushing the S&P 500 index above 1,000 for the first time in nine months, as data on the manufacturing sector underscored optimism that the economy was recovering.

The Nasdaq closed above 2,000 for the first time since early October in an extension of the stock market's recent rally, which has been fueled by stronger-than-expected earnings and data suggesting the recession may be abating. On Friday, the S&P 500 wrapped up its best five-month streak since 1938.

Adding to the positive mood, Ford Motor Co gained 4 percent to $8.33 as the auto maker reported its first year-over-year monthly sales increase since November 2007. Car buyers took advantage of a government program to trade in gas guzzlers.

There are increasing signs that not only have we come back from the precipice and then stabilized, but we're poised to start to grow, and the market is celebrating that, said Jim Awad, managing director of Zephyr Management in New York.

Stocks got a big boost at the start of the day from data showing the manufacturing sector edged closer to growth.

The Institute for Supply Management said its index of national factory activity rose to 48.9 in July, the highest level since August 2008. While the reading was below 50, the level separating contraction from expansion, it was higher than analysts had expected.

That translates into future business, Awad said.

The Dow Jones industrial average <.DJI> shot up 114.95 points, or 1.25 percent, to 9,286.56. The Standard & Poor's 500 Index <.SPX> climbed 15.15 points, or 1.53 percent, to 1,002.63. The Nasdaq Composite Index <.IXIC> advanced 30.11 points, or 1.52 percent, to 2,008.61.

The S&P 500 is now up 48 percent since hitting a 12-year closing low on March 9.

In the financial sector, Bank of America Corp shares rose 3.6 percent to $15.32. The bank agreed to pay $33 million to settle charges by the U.S. Securities and Exchange Commission that the bank made false and misleading statements to investors about bonuses at Merrill Lynch & Co. Bank of America acquired Merrill Lynch on January 1.

It seems like news like that should rock the stock, but it's not. That in itself, from how the market is treating it, indicates that the financials are stronger than we think, said Terry Morris, senior equity manager for National Penn Investors Trust Company in Reading, Pennsylvania.

Bank of America also said on Monday it hired Citigroup Inc veteran Sallie Krawcheck and shuffled its top executives, putting some in the running to succeed Chief Executive Kenneth Lewis.

Financial stocks rallied after a number of major European banks -- including HSBC and Barclays -- offered encouragement that they could get through the worst of the recession. The S&P financial index <.GSPF> rose 2.7 percent.

On the Nasdaq, Cisco Systems , which is scheduled to report results this week, was among the top advancers, rising 2.6 percent to $22.57.

Apple Inc's shares rose 1.9 percent to $166.43 and Google Inc gained 2.1 percent to $452.21 after both companies mutually agreed on the need for Google CEO Eric Schmidt to resign from Apple's board.

International Business Machines , meanwhile, gave a big boost to the Dow after Bernstein raised its price target on the stock. IBM shares rose 1.7 percent to $119.92.

Volume was below average on the New York Stock Exchange, with 1.21 billion shares changing hands, under last year's estimated daily average of 1.49 billion, while on the Nasdaq, about 2.18 billion shares traded, below last year's daily average of 2.28 billion.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of 5 to 1, while on the Nasdaq, about nine stocks rose for every four that fell.

(Reporting by Caroline Valetkevitch; Additional reporting by Ryan Vlastelica; Editing by Jan Paschal)

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