NEW YORK (CNN/Money) - Stocks soared Monday on bets that a war with Iraq is imminent and will end quickly, giving blue chips their best gains of the year and pushing the Nasdaq further into positive territory for 2003.

But extending the gains Tuesday or beyond could be tricky for Wall Street.

Investors welcomed signs that the uncertainty over the Iraq crisis seems to be over, scooping up stocks in the hope that the market will recover when a war is fought and won.

In other markets, Treasury bond prices tumbled after rising for weeks on "safe-haven" buying, the dollar rallied and oil slumped. Gold ended little changed.

"Clearly, the market has been on hold with the events in Iraq, and we're now nearing a crisis deadline," said Scotty George, chairman of du Pasquier Asset Management. "Markets love to work with a balance of certainty. After several weeks of selling, we're now looking at some value hunting."

"Opportunity in the long run exists," he added, "but this kind of movement of a hundred points or more on a day is part of the sturm und drang of the markets. It doesn't look sustainable over the next six to eight weeks."

What happens next on Wall Street could be influenced by what seems to be the coming of war. President Bush said in a speech late Monday that Iraqi President Saddam Hussein has 48 hours to leave the country or face war. (Click here for full coverage from CNN.com).

"Peaceful efforts to disarm the Iraqi regime have failed again and again, because we are not dealing with peaceful men," Bush said, and gave the Iraqi leader 48 hours for him, his immediate family and other key leaders to leave Iraq before military action began "at a time of our choosing."

Iraqi officials dismissed the idea of exile, and Hussein has vowed to fight any U.S.-led invasion.

Meanwhile, in Washington, the U.S. raised the national security alert to orange, or high, given fears of terrorist attacks during war with Iraq.

Elsewhere Tuesday, Federal Reserve policy makers are to meet to discuss interest rates and the economy. Most economists surveyed by Reuters expect the Fed to hold its key short-term rate steady at 1.25 percent, although there is the possibility the central bank could say it is more concerned with economic weakness.

And tech stocks may come under pressure Tuesday from news after the close Monday that Applied Materials (AMAT: Research, Estimates) is cutting 2,000 jobs and closing plants due to weak demand for its products. Shares of the stock lost 5 cents to $13.08 in after-hours trade. Separately, computer maker Gateway (GTW: up $0.20 to $2.40, Research, Estimates) also announced job cuts.

Concerns about a potential war with Iraq and what impact it might have on the global economy had stunted stock movement for months. But knowledge that the war will likely be waged within days, and hope that once it starts it won't last long, drove the market sharply higher Monday.

The Dow Jones industrial average (up 282.21 to 8141.92, Charts) and the S&P 500 index (up 29.52 to 862.79, Charts) both climbed about 3.5 percent Monday while the Nasdaq composite (up 51.94 to 1392.27, Charts) added 3.9 percent, extending the tech-laden gauge's gain to 4.3 percent for the year.

Treasury bond prices fell sharply, pushing their yields higher as investors fled the safe haven. Bond prices and yields move in opposite directions. Stock market breadth was decidedly positive and volume continued to improve from last week, following several months of lackluster trading.

U.N. weapons inspectors, humanitarian staff and others have been ordered out of Iraq by U.N. Secretary-General Kofi Annan as diplomatic efforts to avoid a war have now ended. Earlier, the leaders of the United States, Britain and Spain opted not to push for a Security Council vote on a second U.N. resolution giving Iraq a deadline to disarm. The resolution was likely to have been vetoed by France and Russia.

The development came after a weekend summit of the leaders from Washington, Madrid and London in Portugal's Azores Islands, after which President Bush issued a statement setting Monday as the last day for diplomacy regarding Baghdad. (For more details on the latest developments, go to CNN.com.)

Armed with this information, Wall Streeters rushed to cover their short positions and rallied the market. This behavior was in sharp contrast with the stock market's performance recently, in which investors sold stocks off every time war appeared more likely.

"It's two things. The old cliche is that the market hates uncertainty. So this removes the uncertainty," said Donald Selkin, director of research at Joseph Stevens.

"Iraq's army is reportedly weaker than it was in 1991 [during the Gulf war], and our military technology is reportedly a lot stronger. So there's a perception that if there is a war, it will be quick. Everyone's been hoping that once the war is over, corporations and consumers will pick up spending as well, so you have investors not wanting to be left out should that happen," Selkin added.

The second factor, Selkin said, which explained why tech stocks were so strong Monday, is that there are options expirations Friday, and there's a big build-up of short positions, particularly in Dell, Microsoft, Cisco and Intel.

Shares of heavily weighted Nasdaq networking issue Sun Microsystems (SUNW: up $0.29 to $3.53, Research, Estimates) gained more than 8 percent after a Barron's article over the weekend said the stock could be overdue for a bounce in the event of a tech turnaround.

In addition, a number of technology powerplays gained, with Dow components Hewlett -Packard (HPQ: up $0.82 to $16.40, Research, Estimates) and Intel (INTC: up $0.89 to $18.06, Research, Estimates) up 5 percent, and IBM (IBM: up $3.46 to $82.46, Research, Estimates) up 4 percent.

Intel gave support to a number of the Nasdaq's semiconductor issues, with KLA-Tencor (KLAC: up $2.26 to $37.34, Research, Estimates) and Xilinx (XLNX: up $1.71 to $27.09, Research, Estimates) gaining 6 percent, boosting the Philadelphia Semiconductor index more than 5 percent.

Of the 30 issues that comprise the Dow industrials, 29 closed higher, with Altria (MO: down $0.21 to $34.72, Research, Estimates) the lone downer after Salomon Smith Barney cut its rating on the tobacco industry to "underweight" from "market weight" based on potential litigation costs from some current lawsuits and more concerns about domestic cigarette sales.

Some of the same sentiment that lifted equities gave a boost to the U.S. dollar as well, enabling the greenback to recover from its pre-market lows. The dollar hit a two-month high versus the euro and gained more modestly versus the yen on bets that a war will be short-lived and a fairly easy victory for the U.S.-led forces, therefore lifting the geopolitical uncertainty that is hanging over the dollar and the U.S. economy.

U.S. Treasury bonds fell sharply amid the strong rally in equities. The benchmark 10-year note fell 1-5/32 of a point in price for a yield of 3.84 percent.

The prospect of imminent war in the Middle East failed to prevent oil prices from sliding as investors switched to betting the war will be short and swift. The market also got a boost from comments by Rep. Billy Tauzin, R-La., chairman of the U.S. House Energy and Commerce Committee, that the U.S. strategic oil reserve is set to be released as soon as needed.

"The biggest thing right now is statements attributable to Congressman Tauzin saying the [Strategic Petroleum Reserve] has been switched to flow mode," said John Kilduff, energy analyst at Fimat USA.

Light sweet crude futures for May delivery tumbled 82 cents to $32.54 a barrel in New York. Gold futures ended the day 60 cents higher at $337.20, after being as much as $6 higher earlier in the day.

Stocks in Europe closed mostly higher, recovering from earlier losses, with London's FTSE 100 closing up more than 3 percent. Asian markets tumbled overnight.

Market breadth was strongly positive. On the New York Stock Exchange, winners topped losers almost 12 to 5 as 1.67 billion shares traded. On the Nasdaq, advancers beat decliners by more than 2 to 1 as 1.83 billion shares changed hands.