The S&P 500 roared into positive territory for 2009 on Monday as the bulls pointed to a pair of better-than-expected housing reports as the latest signs an economic recovery is coming sooner rather than later.

Today’s Markets

The Dow Jones Industrial Average gained 214.33 points, or 2.61%, to 8426.74, the S&P 500 rose 29.72 points, or 3.39%, to 907.24 and the Nasdaq Composite picked up 44.36 points, or 2.58%, to 1763.56. The consumer-friendly FOX 50 added 19.05 points, or 2.95%, to 665.25.

“You’re seeing an embracing of the fact that the economy is no longer falling off a cliff. We are starting to see a little bit of strength here and there,” said Paul Nolte, director of investments at Hinsdale Associates.

In addition to a surprise jump in pending home sales and the first increase in construction spending in six months, the markets responded favorably to signs banks may be able to tap private capital to raise cash, a global stock market rally and mixed earnings reports from companies like Sprint Nextel (S: 5, 0.34, 7.3%).

Underscoring a huge rally in the financial sector, the Dow was led higher by banking giants Citigroup (C: 3.23, 0.2401, 8.03%) and Bank of America (BAC: 10.43, 1.75, 20.16%). Non-financials like aluminum maker Alcoa (AA: 10.39, 0.71, 7.33%) and DuPont (DD: 29.38, 1.54, 5.53%) also rose sharply. Other blue-chip stocks like Microsoft (MSFT: 20.19, -0.05, -0.25%) and Chevron (CVX: 66.63, -0.24, -0.36%) lagged behind.

“We are continuing to see signals that this market has stabilized and is rebounding,” NSYE trader Jonathan Corpina of Meridian Equity Partners told FOX Business.

That rebound hit another milestone on Monday as the S&P 500 joined the Nasdaq Composite by turning green year-to-date and the Dow settled at its best closing level since January 13. The rally is the latest example of Wall Street’s mood shift as last week the markets shrugged off swine-flu worries and Chrysler’s bankruptcy to send the Nasdaq to its longest win streak since 1999.

“Investors are looking ahead and saying if this trend continues, we will be out the recession some time this year or the beginning of next year, which means the markets should be trading higher in anticipation of that,” said Nolte.

But some traders continue to wonder whether a pullback from the two-month long rally is in the offing.

“I still think it is a bear market rally, although that question is more academic than reality. There is still probably some pretty rough days ahead of us. There is still a lot of headline risk in the market,” Steve Sachs, director of trading at Rydex Investments, told FOX Business.

The markets could be in store for turbulence later this week as the government is set to release its stress test results on Thursday and issue another gloomy jobs report on Friday.

Banks, Housing Hopes Lift Stocks

The markets took off Monday after a pair of economic reports offered traders hope that the depressed housing market may be bottoming out.

Home building stocks like KB Home (KBH: 19.49, 2.01, 11.5%) and Hovnanian (HOV: 3, 0.31, 11.52%) soared as an industry group said pending home sales unexpectedly jumped in March by 3.2% from the month before and increased from a year ago. The National Association of Realtors also said existing home prices increased in March to $174,900.

“We want to see home sales pick up. We want to see people come out and start buying. That will be huge,” said Nolte.

Also, the Commerce Department said U.S. construction spending unexpectedly rose by 0.3% in March — the first such increase in six months.

Financial stocks surged almost 11% on Monday — easily the best-performing sector — as the markets responded favorably to the latest details seeping out about the government’s bank stress tests. The Financial Times

Bank of America (BAC: 10.43, 1.75, 20.16%) denied a Financial Times report that it plans to raise $10 billion in common equity as it said it has not yet been given a final figure from the Fed. The paper also reported Citigroup (C: 3.23, 0.2401, 8.03%), Wells Fargo (WFC: 24.18, 4.6, 23.49%) and PNC Financial (PNC: 43.25, 5.44, 14.39%) also need to raise cash.

In a positive development, Citi is succeeding in talks with private investors to convert $12.5 billion of preferred holdings into common equity, bank sources tell FOX Business’s Liz MacDonald. While the move will dilute current common holders, it could allow Citi to avoid having the U.S. convert its entire $52 billion stake.

Wall Street shrugged off the latest reminder of the obstacles facing the banking industry as three more banks were closed over the weekend, bringing the total to 32 for this year, 7 more than all of 2008. The shut down of Silverton Bank in Georgia could have a big impact as it had ties to 20% of U.S. banks.

In the commodity markets, crude oil closed in the green for the fourth-straight day. Crude jumped $1.27 per barrel, or 2.39%, to settle at $54.47 per barrel — its best level since November.

Corporate Movers

Sprint Nextel (S: 5, 0.34, 7.3%) beat the Street with an adjusted-profit of 3 cents per share thanks to cost cuts. However, the telecom giant lost a worse-than-expected 1.25 million postpaid customers. Separately, Sprint is in final talks with Ericsson to outsource the management of its cell network and transfer 5,000 to 7,000 U.S. employees, The Wall Street Journal reported.

Chrysler LLC plans to launch a new ad campaign this week backed with a new slew of incentives in an effort to reassure customers while it attempts to quickly emerge from bankruptcy, the Journal reported.

General Motors (GM: 1.81, 0.009, 0.5%) is gearing up for talks with the United Auto Workers union this week as the auto maker seeks to avoid a bankruptcy filing, the Journal reported. GM said Monday it is proceeding with its efforts to sell Saturn as the brand has received interest from “a number of potential buyers.”

Fiat SpA CEO Sergio Marchionne visited Berlin on Monday as the Italian auto maker steps up its efforts to buy Opel, GM’s German unit. Fiat is aiming to spin off its core car business into a new company that includes both Chrysler and Opel and would reap synergies of 1 billion euros per year.

Pepsi Bottling Group (PBG: 31.48, 0.13, 0.41%) rejected an offer from PepsiCo (PEP: 49.12, -0.61, -1.23%) to buy the remaining two-thirds stake in the bottler for $4.2 billion, saying the bid “is grossly inadequate” and “substantially” understates potential synergies.

New York Times Co. (NYT: 5.99, 0.59, 10.93%) threatened to shut down the Boston Globe if the newspaper is unable to get millions of dollars in concessions from its unions. Talks between Boston’s only daily paper and its union stopped early Monday morning after a midnight deadline passed.

American International Group (AIG: 1.5, 0.1, 7.14%) is close to selling its Japanese headquarters for $1 billion as the bailed-out insurer continues its efforts to repay the U.S., the Journal reported. The likely buyer of the 15-story Tokyo building is a Japanese insurer.

Tyson Foods (TSY: undefined, undefined, undefined%) reported an adjusted-loss of 5 cents a share, one cent better than what analysts expected. The company struggled during the quarter with low poultry prices and high input costs like grain and energy. It said “it is too soon” to predict the impact of the swine-flu outbreak.

DirecTV (DTV: 23.93, -0.64, -2.6%) unveiled plans to merge with Liberty Media’s (LMDIA: 25.21, 0.88, 3.62%) entertainment unit. The combination would give Liberty Media’s entertainment unit a 54% stake in the satellite TV provider.

Global Markets

Asian and European markets soared overnight, though two of the largest global markets — London and Japan — were closed for a holiday.

European markets extended their win streak to three days as France’s CAC 40 rose 2.47% to 3237.97 and Germany’s DAX gained 2.79% to 4902.45.

Hong Kong’s Hang Seng jumped 5.54% to 16381.05 and China’s Shanghai Composite advanced 3.32% to 2559.91.

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