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The Dow Jones Industrial Average kicked off the week with its biggest rally in more than two months as investors looked for signs of a compromise in Washington on the "fiscal cliff." The Dow industrials climbed 207.65 points, or 1.7%, to 12795.96, ending Monday near session highs. The advance gave blue chips their biggest one-session rise since Sept. 6 and their first back-to-back gains since the presidential election on Nov. 6.

All 30 of the Dow's components rose, with Bank of America BAC +4.06%and Hewlett-Packard HPQ +3.50%leading the index higher. The Standard & Poor's 500-stock index gained 27.01 points, or 2%, to 1386.89. Five of the S&P 500's sectors climbed at least 2%, led by materials and technology stocks. Only utility stocks fell, compounding losses for the typically defensive sector, which has shed more than 7% this month. The Nasdaq Composite Index jumped 62.94 points, or 2.2%, to 2916.07. Apple AAPL +7.21%surged, benefiting from a Barron's story over the weekend that said the stock looks undervalued and could push as high as $800. Shares remain 20% below their all-time high, hit back in September.

Investors said the market remains tethered to news reports about potential progress on resolving the fiscal cliff, the combination of tax increases and spending cuts set to go into effect at the end of the year. On Sunday, President Barack Obama, who was in Bangkok for a three-nation trip, said he was "confident" the fiscal situation could be dealt with by lawmakers. "Constructive comments over the weekend are key for the market to feel like, in this postelection environment with all the intense partisan politics, the two parties will be able to get together to avoid the fiscal cliff that would put the economy back in contraction," said Jeff Morris, head of U.S. equities at Standard Life Investments SL.LN +2.50%at Boston.

In U.S. economic news, sales of previously owned homes rose last month, beating expectations. Separately, the National Association of Home Builders said its home builders' confidence index rose to its highest level in 6½ years. Strong readings from the housing market gave a boost to industry stocks. Quanex Building Products, NX +5.21%which sells products like windows and doors, and Fortune Brands Home & Security, FBHS +4.05%which makes products like cabinets, advanced.

European markets rallied on speculation of U.S. fiscal progress. The Stoxx Europe 600 climbed 2.2%, its biggest one-day rise in more than two months, and snapped a three-day losing streak. France's CAC-40 index climbed 2.9%, while Germany's DAX gained 2.5%. Asian markets were solidly higher, led by a 1.4% gain in Japan's Nikkei Stock Average. The index has climbed for four straight trading days. Hong Kong's Hang Seng Index rose 0.5%.

Crude-oil prices rose 2.7%, to settle at $89.28 a barrel as fighting between Israel and Palestinian militants intensified, raising the threat of broader conflict in the Middle East. Gold prices gained 1.1%, to settle at $1,734 a troy ounce. The dollar weakened against the euro but rose versus the yen. The yield on the 10-year Treasury note rose to 1.611%, as prices fell.

Malaysia shares may rise, tracking Monday's jump on Wall Street, on better U.S. housing data and hopes that progress towards resolving the U.S. fiscal cliff; on the chart, the benchmark KLCI may see a recovery towards immediate resistance at 1635, says HwangDBS. The KLCI ended Monday 0.4% lower at 1623.31, its fourth straight-day of losses.         [The Wall Street Journal]