The Dow Jones Industrial Average rose 52.66 points to 11,103.71. Over the last two sessions, the benchmark index has logged a gain of more than 230 points.

The Nasdaq Composite Index added 12.06 points to end at 2,073.90 while the S&P 500 Index climbed 7.97 points to 1,268.88.

"You have to feel comfortable with the notion that portfolio managers believe that the market, first, is undervalued as many have argued and, secondly, that we are not headed toward a hard landing for the economy and that the Federal Reserve, based on what we've heard from Chairman Bernanke and others will not make a mistake of raising interest rates too high," said Hugh Johnson, chairman of Johnson Illington Advisors. "That's been the assessment of the market over the last two days.

But corporate profits remain a concern, said Joe Battipaglia, chief investment officer at Ryan, Beck & Co. "Good quarterly earnings have a 'but' attached to them, and that is revisions downward of future guidance," he said.

On the economic-data front, there was more grim news about sales of existing U.S. homes. Although sales fell by a smaller-than-expected 1.3% in June, the inventory of unsold homes rose to a record 3.725 million, its highest since July 1997, the National Association of Realtors reported. See full story.

Separately, U.S. consumer confidence strengthened a bit in July, the Conference Board said. The consumer-confidence index rose to 106.5 in July from a revised 105.4 in June. The gain was unexpected. Economists forecast the index to slip to 103.9 in July from the initial June estimate of 105.7.

On the broader market for equities, advancers outnumbered decliners by more than 2 to 1 on the New York Stock Exchange, and by 18 to 11 on the Nasdaq.

The Dow Jones Industrial Average could get some help from strong earnings forecasts from components Altria, DuPont, and sharply higher profits from McDonald's.

The futures contract for the Dow Jones Industrial average last was down 9 points at 11,093.

Futures contracts for the S&P 500 and the Nasdaq Composite were down 1.20 point at 1,266.30 and up 1.5 point at 1,496.

The Dow industrials rose 182.67 points, or 1.7% to 11,051. Of 30 Dow stocks, 29 contributed to gains.

The Nasdaq Composite Index rallied 41.45 points, or 2.1% to 2,061.84 while the S&P 500 Index climbed 20.62 points, or 1.7% to 1,260.91.

"The M&A activity, whether it be AMD or HCA, has put a bid under the market," said Jay Suskind, director of trading at Ryan, Beck & Co.

Suskind said market sentiment received a further boost as U.S. Secretary of State Condoleezza Rice arrived in the Middle East. Her diplomatic offensive raised hopes that a cease-fire between Israel and the Lebanon could be brokered.

For Marc Pado, U.S market strategist at Cantor Fitzgerald, quarterly results will continue to be key. "This week needs to be about hitting expectations," said Pado, U.S. market strategist. "It also wouldn't hurt if we topped expectations on a few key earnings reports this week as well."