FILE -In this Friday, Nov. 16, 2012, file photo, President Barack Obama acknowledges House Speaker John Boehner of Ohio while speaking to reporters in the Roosevelt Room of the White House in Washington. U.S. stocks shook off their post-election slump Monday and recorded big gains as investors appeared more optimistic about a deal to avoid a federal budget crisis and were encouraged by a pair of corporate earnings reports. (AP Photo/Carolyn Kaster)
FILE -In this Friday, Nov. 16, 2012, file photo, President Barack Obama acknowledges House Speaker John Boehner of Ohio while speaking to reporters in the Roosevelt Room of the White House in Washington. U.S. stocks shook off their post-election slump Monday and recorded big gains as investors appeared more optimistic about a deal to avoid a federal budget crisis and were encouraged by a pair of corporate earnings reports. (AP Photo/Carolyn Kaster)
U.S. stocks shook off their post-election slump Monday and recorded big gains. Investors appeared more optimistic about a deal to avoid a federal budget crisis and were encouraged by a pair of corporate earnings reports.
The Dow Jones industrial average climbed as much as 179 points. At 12:30 p.m. EDT, it was up 173 points, or 1.4 percent, at 12,761. The Dow had slid 5 percent since Election Day.
President Barack Obama and leaders in Congress are in talks to avoid going over a "fiscal cliff" on Jan. 1, when tax increases and mandatory government spending cuts are set to take effect.
"It is quite clear that both sides want to come to a compromise and that a reasonable compromise is available," said David Kelly, chief global strategist for J.P. Morgan Funds, in a note to clients.
Still, most analysts expect trading to remain volatile until lawmakers can convince the markets that a solution is in the works.
Randy Frederick, managing director of active trading and derivatives at the brokerage Charles Schwab, said he "wouldn't be surprised to see this given back up in a day or two."
The Standard & Poor's 500 index rose 23 points, or 1.7 percent, to 1,382. The Nasdaq composite average gained 51 to 2,904.
A pair of strong corporate earnings reports also boosted Wall Street. Lowe's said its third-quarter profit surged 76 percent. That followed a strong report from Home Depot last week. Lowe's rose $2.12, or 7 percent, to $34.10.
Tyson Foods, the country's biggest meat company, beat analysts' expectations for its quarterly earnings. Tyson rose $1.52, or 9 percent, to $18.40.
Materials stocks soared, supported by the latest sign that a recovery in the housing market has stabilized.
The National Association of Realtors said sales of previously occupied homes in the U.S. rose in October, helped by a stronger job market and record-low mortgage rates. The pace of sales is roughly 11 percent higher than a year ago.
Stocks fell in each of the past four weeks as traders fretted about the possibility that lawmakers will fail to prevent the spending cuts and tax increases from taking effect.
They turned positive Friday afternoon, breaking a four-day slump, amid signs that Obama and Congress were prepared to cede long-held bargaining positions. House Speaker John Boehner and Senate Minority Leader Mitch McConnell both said they had offered higher tax revenue as part of a deal.
Monday's rally put the Dow on track for its biggest one-day increase since Sept. 13.
The S&P 500, meanwhile, is trading at a key technical level, Frederick said. For nearly two weeks, the index has closed below its 200-day average, which on Monday stood at 1,382.
It hovered near that marker Monday morning. If it closes higher, Frederick said, that might signal more buying. Technical levels are historic averages and other indicators used by some traders to decide if stocks are a good value.
Volume was light on the first day of a holiday-shortened trading week. The market is closed on Thursday for Thanksgiving and will close early Friday.
Indexes in France, Germany and Britain closed up 2.5 percent or more as traders monitored Greece's quest for its latest round of bailout cash.
Greece needs international lenders and the International Monetary Fund to release the money so that Greece can meet upcoming payments to creditors. Trading in Europe remains volatile as the region has entered recession and is struggling to solve the broader debt crisis.
Finance ministers from nations that use the euro will meet Tuesday. Later in the week, leaders will convene to discuss the European Union's budget for the next few years.
Traders also were following developments in the Middle East as conflict between Israel and Hamas flared. Concerns about instability in the region and hopes for a U.S. fiscal pact pushed the price of oil up nearly 3 percent to $89.34 in afternoon trading.
Earlier, Asian markets rose more modestly.
The yield on the benchmark 10-year Treasury note rose 1.62 percent from 1.58 percent late Friday, a sign that traders are selling low-risk investments. A bond's yield rises as its price falls.
The market's longer-term direction will likely hinge on U.S. leaders' ability to attack the fiscal challenge between Thanksgiving and Christmas, Frederick said. "If they can put some sort of a plan together, or make us believe they have a plan, or at least that there's some cooperation going on there, that could be a real boost for the market," he said.
Among the big companies making news, Intel overcame an early drop, gaining a penny to $20.20 after its CEO of 40 years announced that he will retire in May.
Diamond Foods hit its lowest price since September 2006 after an analyst cut the snack food company's rating and price target. Diamond restated two years' worth of financial results last Wednesday, effectively wiping away $56.5 million in profit from its books. Diamond fell $1.75, or 12 percent, to $13.38.
Advanced Micro Devices Inc. rose after an analyst said that the stock could see an "early 2013 bounce." He said investor concerns about the company's solvency were overblown and caused traders to oversell. AMD rose 8 cents, or 4 percent, to $1.94.
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Daniel Wagner can be reached at www.twitter.com/wagnerreports .
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