U.S. stocks closed at their highest level in 10 weeks on Monday and the S&P 500 pierced key technical levels as a weaker U.S. dollar lifted the energy and raw materials sectors.

Strong results in Europe from BNP Paribas SA and HSBC Plc added to the upbeat tone and lifted U.S. bank stocks. JPMorgan Chase & Co rose 3.4 percent to $41.64 and the KBW Bank index <.BKX> gained 3.2 percent.

The falling greenback set off a 3 percent jump in crude prices, which, coupled with BP's attempt to permanently cap its Macondo well in the Gulf of Mexico, sent energy shares soaring.

Macondo-linked companies rallied, with Transocean Ltd up 9.6 percent to $50.68. The Philadelphia exchange oil services sector index <.OSX> climbed 4.5 percent.

Oil service and oil companies got overdone on the downside because of the problem in the Gulf, and now we are having a natural reaction back up, said Carl Birkelbach, chief executive of Birkelbach Investment Securities in Chicago.

Crude futures settled above $81 per barrel for the first time since early May. The S&P energy sector <.GSPE> jumped 3.6 percent.

Raw materials also rose and the Reuters/Jefferies CRB commodity index <.CRB> hit a three-month high. Dow component and aluminum company Alcoa Inc advanced 4.8 percent to $11.71.

The 90-day correlation between the CRB and S&P 500 is currently .85, up dramatically from the 0.33 range in early May. Many investors reason rising raw material prices bodes well for global demand prospects.

The Dow Jones industrial average <.DJI> gained 208.44 points, or 1.99 percent, to 10,674.38. The Standard & Poor's 500 Index <.SPX> advanced 24.26 points, or 2.20 percent, to 1,125.86. The Nasdaq Composite Index <.IXIC> rose 40.66 points, or 1.80 percent, to 2,295.36.

The S&P 500 closed the session above its 200-day moving average and the 1,121 level, the midpoint of the slide from its historic high reached in October 2007 and the 12-year low hit in March 2009, which has been viewed as a key resistance level.

The benchmark has not been able to close above this 50 percent retracement since mid-May.

The more times a level is tested, it heightens the significance of the move when you finally do break through, said Richard Ross, global technical strategist at Auerbach Grayson in New York.

The CBOE Volatility Index <.VIX> fell below its 200-day moving average, suggesting some of the near-term fear on the market has diminished. But options activity on VIX futures show that traders continue to anticipate higher volatility.

Since the beginning of May, the VIX has closed below its 200-day MA only twice, both times occurring last week.

Even though VIX futures contracts were down, they still carry a premium to spot VIX, indicating traders expect significantly higher volatility for the rest of 2010, said OptionMonster analyst Chris McKhann in Chicago.

Further boosting stocks, the Institute for Supply Management said the U.S. manufacturing sector grew at a faster rate than expected in July. The government reported construction spending unexpectedly rose in June.

Volume was light, with about 7.63 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, well below last year's estimated daily average of 9.65 billion.

Advancing stocks handily outnumbered declining ones on the NYSE by about 11 to two, while on the Nasdaq, advancers beat decliners by a ratio of five to two.

(Reporting by Chuck Mikolajczak; Additional reporting by Rodrigo Campos and Angela Moon; Editing by Kenneth Barry)