Stocks climbed in early trading, led by financial stocks following Citigroup's announcement that it is settling allegations over mortgages it sold before the financial crisis.
The Dow Jones Industrial Average rose 124 points, or 0.7%, to 17068. The S&P 500 index gained nine points, or 0.5%, to 1977. The Nasdaq Composite Index tacked on 21 points, or 0.5%, to 4436.
Financial stocks led broader markets higher, with shares of Citigroup rising 3.6%. The bank on Monday Citigroup said it agreed to pay $7 billion to settle allegations by the U.S. government about the quality of mortgages it sold leading up to the financial crisis. Shares rose 1.3% in premarket trade.
The bank also reported that its second-quarter profit tumbled 96% amid a charge related to the settlement with the Justice Department. Still, the results beat analyst expectations.
The S&P 500 financial sector index gained 0.9%, leading other sector benchmarks.
The gains come on the heels of steep losses last week. For the week, the S&P 500 and Nasdaq Composite dropped by the most since April, while the Dow posted its biggest weekly loss in a month.
Jim Russell, senior equity strategist at U.S. Bank Wealth Management, said second-quarter earnings are likely to take center stage for investors this week, and expectations are high following a slump in the first quarter.
"For the market to sustain at current levels or continue to advance, we're going to need to see earnings come in and meet or beat consensus estimates," Mr. Russell said. He said last week's scare over the financial health of a Portuguese bank is receding in importance, adding that his $120-billion firm is increasingly finding value in European stocks. "It doesn't appear that the Portugal situation has a contagion aspect."
More than 50 companies in the S&P 500 are scheduled to report this week. Companies in the S&P 500 are expected to see earnings grow about 4.6% in the second quarter from a year earlier, according to FactSet.
U.S. stocks have pushed to records this year, propelling the Dow Industrials above 17000 for the first time, boosted in part by evidence of a labor-market recovery and low interest rates. But many investors say the next leg higher depends on the growth of corporate earnings.
"The reality is that equity valuations can only be sustained at these levels through increased earnings," said Rebecca O'Keeffe, head of investment at Interactive Investor, a U.K. stockbroker. "With equity market valuations at high levels…can earnings for individual companies live up to those high valuation expectations?"
The S&P 500 is trading at 15.6 times its expected earnings for the next 12 months. That is higher than the average of 13.9 for the past 10 years.
European stocks were recovering following last week's turbulence. The Stoxx Europe 600 index rose 0.7%, clawing back part of last week's losses.
The euro inched 0.1% higher against the dollar to trade at $1.3625, boosted by the more buoyant tone in euro-zone bond markets.
In commodity markets, gold futures fell 2.3% to $1,305.70 an ounce, while crude-oil futures declined 0.4% to $100.46 a barrel.
In other corporate news, U.S. drug company AbbVie Inc. ABBV -1.00% is nearing a deal to buy Dublin-based Shire SHPG +1.90% PLC for more than 31 billion pounds ($53 billion). Shire said Monday it had received an altered offer of 53.20 pounds a share, marking the fifth takeover attempt by AbbVie.
Shares of AbbVie fell 0.8%. U.S. based shares of Shire rose 1.9%.
