Stocks rose on Monday on bets the government's stress tests on the financial sector won't force banks to raise as much capital as originally thought and housing data reinforced hopes the economic slump is easing.

Fresh data gave investors more reasons to buy some stocks after pending sales of existing homes rose unexpectedly in March, which lifted shares of home builders, including Lennar , up 8.9 percent at $10.30.

Investors are buying into the incremental improvement story and as long as that remains, that'll be something that will prop up stock prices, said Bucky Hellwig, senior vice president at Morgan Asset Management in Birmingham, Alabama.

With the final stress test results expected to be released on Thursday, investors hoped banks that do need to raise capital will be able to do so without converting the government's preferred shares into common stock, which would avoid giving the government a bigger stake in the banks.

The Dow Jones industrial average <.DJI> climbed 149.89 points, or 1.83 percent, to 8,362.30. The Standard & Poor's 500 Index <.SPX> gained 17.26 points, or 1.97 percent, to 894.78. The Nasdaq Composite Index <.IXIC> rose 24.94 points, or 1.45 percent, to 1,744.14.

The broad S&P 500 is at its highest level since early January and is less than 1 percent away from turning positive for the year. Since the March 9 bear market closing low, the index is up 32.5 percent.

With earnings season slowing down, Sprint Nextel Corp was among the standouts. Sprint's stock jumped 12.4 percent to $5.25 after it posted a surprising profit as it cut costs and had growth in prepaid subscribers.

Shares of General Motors rose 1.7 percent to $1.84 after Italy's Fiat SpA said it could seek a merger of its auto group with GM's European unit, then spin off and list the combined entity.

Separately, GM said it has a number of potential buyers for its Saturn brand and will look to secure an agreement later this year. Struggling GM is in the midst of restructuring in order to avoid bankruptcy.

Citigroup Inc is looking to raise any additional capital it might need from private investors rather than giving more control to the government, Bloomberg reported.

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 5.4 percent to $9.17 while the KBW Bank index <.BKX> gained 6.2 percent.

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

(Editing by Jan Paschal)