The Dow Jones Industrial Average jumped 93.24 points, or 0.81 per cent, to 11,670.75, its highest close since August 28, 2008. The climb represented the measure's biggest move since December 3, the third time in a row it rose on the first trading day of the year and its seventh gain in the past nine sessions.
Bank of America led the measure's climb, jumping 6.4 per cent.
The banking giant said it expects to take a provision of about $US3 billion ($2.94bn) in the fourth quarter to buy back bad loans from Freddie Mac and Fannie Mae that were issued by its troubled Countrywide Financial unit. Investors were relieved to see the size of the hit from the bad-loan repurchases quantified.
Alcoa and Boeing were also strong, boosted by upgrades from analysts.
Alcoa climbed 2.7 per cent after Deutsche Bank raised its investment rating on the aluminium giant's stock to buy from hold, citing "growing optimism" for higher aluminium prices and a belief "Alcoa has turned the corner from an operational point of view".
Boeing rose 1.8 per cent after JP Morgan upgraded it to overweight from neutral, citing an improving outlook for core commercial aircraft.
However, Intel fell 0.9 per cent. Piper Jaffray cut its investment rating on the stock to neutral from overweight, saying Intel is missing the wave of "ultramobile devices," and it expects personal-computer unit growth to decline.
The Nasdaq Composite added 38.65 points, or 1.46 per cent, to 2691.52, its highest close since December 26, 2007. The S&P 500 stock index gained 14.23 points, or 1.13 per cent, to 1271.87, its highest close since September 3, 2008.
Volume rebounded from last week's meagre levels but was still below the 2010 daily average. Just over 4.5 billion shares changed hands in New York Stock Exchange composite trading during the latest session; the 2010 daily average was 4.8 billion. more ...
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