Stock indexes closed Monday at the highest point since the U.S. debt limit showdown in August. The market was driven higher by a round of big corporate takeovers and reports that Europe's bailout fund will be larger than originally thought. The Nasdaq composite turned positive for the year.
Netflix Inc. plunged 26 percent in after-hours trading after the DVD-by-mail and video streaming company forecast a sharp drop in fourth-quarter profits.
Investors are still waiting for a resolution to Europe's debt problems. European leaders said they made progress at a weekend summit and plan to unveil concrete plans for containing the crisis by Wednesday.
The Dow Jones industrial average was up about 40 points in the first hour of trading but moved steadily higher through midday following reports that Europe's takeover fund will be greatly expanded. It finished with a gain of 104.83 points, or 0.9 percent, at 11,913.62.
"The market is expecting that there will be some kind of deal worked out Wednesday," when European financial ministers are scheduled to meet, said Uri Landesman, president of Platinum Partners. "If there's not a deal by then, the market is going down significantly."
Even with concerns about Europe, U.S. companies are still reporting bigger profits. "Although there is a good deal of economic and political uncertainty in the world, we are not seeing it much in our business at this point," Caterpillar Chief Executive Doug Oberhelman said.
The maker of construction equipment reported a 44 percent surge in income, more than Wall Street analysts were expecting, thanks to strong growth in exports. The company said it expected the global economy to continue recovering, albeit slowly.
The Standard & Poor's 500 index rose to 1,254.19. That is just 3.45 points, or 0.3 percent, below where it started the year. It's the highest close for the S&P 500 since Aug. 3, just as Washington was resolving a showdown over raising the country's borrowing limit. If the S&P 500 finishes the year with a gain, it will be its biggest turnaround since 1984.
The Nasdaq composite rose 61.98, or 2.3 percent, to 2,699.44. The gains turned the Nasdaq positive for the year. The S&P 500 is the only major market index that remains lower than where it started the year.
The Russell 2000 index of small companies rose 3.3 percent as investors moved money into higher-risk assets.
Netflix sank 26.4 percent post-market trading after forecasting fourth-quarter income far below what analysts were expecting. Through Monday's close, the stock had plunged 59 percent since July 12, when it raised prices and announced a plan to break its DVD-by-mail business into a separate company. The company abandoned the plan after it triggered a revolt among subscribers.
Other major U.S. companies due to report earnings this week include UPS Inc., Ford Motor Co. and Procter & Gamble.