New York - US stocks bounced higher for a second consecutive session on Monday as investors were encouraged by the early atmosphere surrounding talks to tackle the nation's fiscal crunch.
Stronger-than-expected earnings from Lowe's and Tyson Foods, as well as encouraging housing data, also contributed to the market's advance. Tyson and Lowe's were the top two percentage gainers on the S&P 500.
The S&P 500 is up more than 2% in the last two sessions as rhetoric from legislators over the weekend suggests a deal could be reached to stave off the looming "fiscal cliff", a series of tax and spending changes that will begin to take effect in the new year. The two sides are still far apart in negotiations, however.
The benchmark S&P index had fallen 5.3% between Election Day and Friday's rebound, as investors took the opportunity to sell stocks - including some of the year's best performers - just in case Washington cannot come to an agreement and taxes on dividends and capital gains rise in 2013.
"Everyone is quietly breathing a sigh of relief, because frankly, we are no longer looking over the edge of a cliff, we are looking at an opportunity to step back and recalibrate," said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey.
However, the rebound could be a short-lived reprieve from the sharp declines and market volatility could still rise, depending on progress in negotiations. A number of sectors were considered oversold on a technical basis - suggesting a buying opportunity.
"There is no question, what lit the fuse was constructive conversation, constructive talking points out of Washington that has done far more to help the market than anything else - the backdrop is the oversold market," Kenny said.
Monday's advance marked the biggest percentage gain for the S&P 500 since November 6, when the European Central Bank announced a new bond-buying program aimed at containing the region's debt crisis.
Shares of Lowe's, the world's No 2 home improvement chain, jumped 6.2% to $33.96 to hit a 52-week high after the company reported higher-than-expected quarterly profit and raised its full-year sales forecast.
Home improvement chains tend to benefit as housing strengthens. US home resales unexpectedly increased in October, while separate data showed homebuilder sentiment rose to its highest level in over six years in November.
The PHLX Housing Index rose 1.8%.
The Dow Jones industrial average gained 207.65 points at 12 795.96. The Standard & Poor's 500 Index was up 27.01 points at 1 386.89. The Nasdaq Composite Index was up 62.94 points at 2 916.07.
The S&P edged above its 200-day moving average at around 1 382, which has acted as a resistance level since a drop below the technically significant mark on November 8.
Tyson Foods beat expectations and gave an upbeat forecast, sending its stock up 10.9% to $18.72.
Intel shares edged higher, up 0.3% to $20.25 after the company said its chief executive will retire in May.
Commodities prices surged, boosting shares of resource companies. Freeport-McMoRan rose 4.1% to $38.28, while US Steel rose 5.3% to $21.15. The S&P materials sector advanced 2.9% as the best performing of the 10 major S&P sectors.