Stocks rose on Monday as investors bet the government's stress tests on the financial sector won't force banks to raise as much capital as originally thought, driving the market higher.

Optimism that the economic slump is abating lifted the market further as data showed pending sales of existing homes rose unexpectedly in March.

With investors anticipating the release of final results of the stress tests on Thursday, Bloomberg reported Citigroup Inc is looking to raise any additional capital it might need from private investors rather that giving more control to the government. Shares of the bank gained 6.3 percent to $3.16.

There's the feeling we're going to see some positive news out of the banks that there's a chance they'll be able to raise capital beyond the government converting their preferred shares, said Jack Ablin, chief investment officer, Harris Private Bank in Chicago.

My barometer for the banking system is their ability to raise private capital, and right now the jury's still out, but at least the signs are encouraging.

The Dow Jones industrial average <.DJI> rose 169.81 points, or 2.07 percent, to 8,382.22. The Standard & Poor's 500 Index <.SPX> gained 18.16 points, or 2.07 percent, to 895.68. The Nasdaq Composite Index <.IXIC> climbed 30.25 points, or 1.76 percent, to 1,749.45.

The broad S&P 500 is up more than 32 percent from early March's bear market low, spurred by hopes the worst is past for the economy and financial system.

Boeing Co helped lift the Dow after it said its 787 Dreamliner would be ready for its first flight later in the second quarter. Boeing shares rose 1.8 percent to $41.95.

The Financial Times, citing people close to the situation, reported that Bank of America Corp is working on plans to raise more than $10 billion in fresh capital, but the bank said it had no plans to do so and that it has not received a final figure from the Federal Reserve.

Bank of America rose 5.8 percent to $9.20 while the KBW Bank index <.BKX> gained more than 5 percent.

The government has assessed 19 major U.S. financial institutions to ensure they have sufficient capital to withstand the recession. The results, which are expected to be announced on Thursday, are anticipated to show banks must raise possibly $150 billion or more in fresh capital and the stocks of the neediest banks are likely to take a hit.

(Editing by Padraic Cassidy)