NEW YORK (CNN/Money) - A bit of encouraging earnings news and hopes for improvement in the economy helped lift U.S. stock markets into a hefty rally Monday.

Led by the Dow Jones industrial average (up 165.26 to 8471.61, Charts), the broader market, including the Nasdaq composite (up 27.70 to 1462.24, Charts) and the S&P 500 index (up 16.03 to 914.84, Charts), advanced about 2 percent.

Some of the rally's foundation was laid before the market opened, when McDonald's and Procter & Gamble, both Dow stocks and consumer staple names, delivered earnings that received a positive interpretation by traders. The perception in the market now is that the first-quarter earnings season hasn't been as disappointing as had been feared.

Two-thirds of the S&P 500 companies have already reported and about 90 more are due to deliver their results by close of this week, according to tracking firm First Call.

Some traders also attributed the advance to a technical bounce after the market's declines at the end of last week.

"Everything came down to key support levels late last week and so I think you're seeing a bounce off that," said John Hughes, market analyst at Shields & Co. "You've also got some economic reports that are being perceived favorably, plus McDonald's earnings."

With earnings coming in largely better than expected and with several surveys showing U.S. consumers regaining their faith after the long winter and the Iraq war, the market's glass was clearly half-full Monday. According to a fresh UBS/Gallup survey, investor optimism rose in April to its highest level in 10 months. The increase from March to April was the largest in the survey's history.

McDonald's (MCD: up $1.12 to $16.93, Research, Estimates) shares rallied more than 7 percent after the firm reported first-quarter earnings that were somewhat better than expected, even if they were smaller than the year before.

Fellow Dow member Procter & Gamble (PG: up $1.55 to $90.69, Research, Estimates) reported first-quarter results that met expectations and increased from a year earlier. Its stock gained nearly 2 percent.

The buying spilled into the rest of the blue-chip index; all 30 stocks that comprise the Dow industrials registered gains.

Chip stocks also found buyers after the release of industry surveys from two trade groups. Reports from the World Semiconductor Trade Statistics (WSTS) and the Semiconductor Industry Association (SIA) showed global sales rose in March from February and were a little stronger than a year earlier. Monthly sales also showed smaller year-to-year growth than they did in February.

Nonetheless, Intel (INTC: up $0.47 to $18.75, Research, Estimates) rose more than 2.5 percent.

Market breadth was decidedly positive. Four stocks rose for every one that fell on the New York Stock Exchange, where volume reached 1.26 billion shares. On the Nasdaq, where some 1.43 billion shares traded, seven stocks advanced for every three that declined.

The morning's economic report showed that personal income and spending both rose in March. Spending increased slightly more than had been expected, which provided some short-term relief after last week's weak gross domestic product reading.

Wall Street saw good news in these numbers, but the week's key economic reports are yet to come and both are expected to show lingering signs of weakness. Thursday will bring the Institute for Supply Management's Purchasing Managers Index, which is expected to still show a contraction in the manufacturing economy. Friday will deliver the monthly employment report for April, and that is expected to show a gain in the unemployment rate.

The question, of course, for many on Wall Street is whether the market will be able to get past what are already assumed to be weak numbers and look forward to better times ahead. Tuesday won't bring an answer, because it will offers no significant earnings news, save for Halliburton's (HAL: up $0.11 to $21.31, Research, Estimates).

The Conference Board's April index of consumer confidence is expected to show a gain, rising to 70 from 62.5 in March, according to the consensus forecast of analysts surveyed by Briefing.com. In other data Tuesday, a measure of labor costs, the Employment Cost Index, probably rose 0.8 percent in the first quarter following a 0.7 percent gain in the prior quarter, according to the Briefing.com consensus.

U.S. Treasury bonds fell slightly. The yield on the 10-year note stood at 3.90 percent as its price inched down 1/8 of a point. The dollar was swept up in the stock rally and recovered from earlier weakness against major currencies, especially the euro.

In the commodities markets, light sweet crude dropped 77 cents to $25.49 a barrel in New York, while gold rose $1.10 to settle at $334.80 an ounce.

Overseas, European stocks closed mostly higher, with the London FTSE 100 adding just under 2 percent. Asian markets closed mixed.