A late afternoon rally pushed the stock market higher for only the second day this month. Major indexes spent most of Monday lower as investors worried that Greece could be edging closer to default.
The yield on the 10-year Treasury note reached another record low as investors piled into U.S. government debt on fears that Europe's debt crisis could spread. The euro fell to a seven-month low against the dollar.
The Dow Jones industrial average rose 68.99 points, or 0.6 percent, to close at 11,061.12. All of the gains came in the last 10 minutes of trading. The Dow had been down as many as 167 points shortly after 2 p.m. Traders said a combination of technical factors and reports that China was buying Italian government bonds triggered the late spurt of buying.
"Over the last several days, stocks have been pushed down so hard it was as if somebody was trying to push a balloon underwater," said Sam Stovall, chief investment strategist at Standard & Poor's Equity Research. "It's bound to pop up even if only for a short period of time."
The S&P 500 index rose 8.04, or 0.7 percent, to 1,162.27. It had dropped as many as 18 points. Technology stocks fared better than the overall market following news of a semiconductor deal. The tech-heavy Nasdaq composite index rose 27.10 points, or 1.1 percent, to 2,495.09.
J.J. Kirnahan, chief options strategist at T.D. Ameritrade, said reports that China planned to buy a significant amount of Italian bonds contributed to the sudden reversal. "The last 16 minutes was insane," he said.
Kirnahan said investors should not take the day's gains as a sign of a longer-lasting trend. "If tomorrow we get any indications that China really isn't going to get involved, then we should expect a quick sell-off."
Worries over Europe's debt crisis drove traders into Treasurys, pushing the yield on the 10-year Treasury note to 1.87 percent, the lowest since the Federal Reserve Bank of St. Louis began keeping daily records in 1962. During the financial crisis in late 2008, the 10-year yield hit a low of 2.05 percent.
Investors fear that Greece could default on its debt, leading to more disruptions in global financial markets. They're also concerned that rating agencies may cut the credit ratings of French banks because of their holdings of Greek bonds. That would mark the spread of Europe's debt troubles from peripheral countries like Greece and Ireland to the heart of Europe's financial system.
"All these things together are getting me concerned," said Douglas Cote, chief market strategist for ING Investment Management. "With Europe's banks under so much duress and Greece near an imminent default, you can't tell me the U.S. is insulated from their problems. I don't buy it."
The resignation of a key European Central Bank official combined with worries over a new recession in the United States led to a stock market sell-off Friday. The Dow Jones industrial average and Standard & Poor's 500 index have fallen for six of the past seven weeks. Before Monday, the Dow, S&P 500 and Nasdaq had posted gains only one day this month, last Wednesday.
Tenet Healthcare Corp. sank 10 percent to $4.52, the biggest drop among companies in the S&P 500. The hospital operator said it expects earnings to take a hit from a rise in patients using Medicaid, which pays hospitals less for treatment than private insurance.
McGraw-Hill Cos. rose 4 percent to $40.26. The company said it will split into two public companies, one unit focused on education services and the other centered on markets, including the rating agency Standard & Poor's and J.D. Power and Associates.
NetLogic Microsystems Inc. jumped 51 percent to $48.12 after Broadcom Corp. said it has agreed to acquire the maker of semiconductors for $3.7 billion. Bank of America Corp. rose 1 percent to $7.05 after the bank said it would slash 30,000 jobs as part of a cost-cutting drive.
Wynn Resorts rose 2 percent to $151.72 after a unit of the casino operator said it had a signed a deal to build a resort in Macau. Casinos have been expanding their operations in the former Portuguese colony, considered the world's most lucrative gambling market.