NEW YORK (CNN/Money) - Stocks partied like it was 1999 Monday on a report that Microsoft was weighing a big payout for shareholders and on hopes that a recovery in the economy -- and corporate profits -- is on the way in the second half.

The same optimism is likely to continue to lift stocks for the rest of the week, market analysts said, but the rally could lose some steam as the summer progresses. That is, unless the corporate and economic reports show the kind of growth investors have been betting on.

"It's clear (from the rally) that sentiment has improved on hopes that this second-half recovery is starting to gain momentum," said Peter Cardillo, director of research at Global Partners Securities.

Cardillo said he thinks the market can keep rising in the short-term, with the S&P 500 index adding 4 to 5 percent in the next week or so. (For more on Monday's powerful rally, which took the Nasdaq up 3.4 percent, the Dow up 1.6 percent and pulled the S&P 500 back above 1,000, click here).

But for the next few weeks beyond that, stocks could get hit by some profit-taking as investors pull back after the market's big run up. Many analysts say that the summer months, including most of the third quarter, are likely to see stocks moving sideways.

But that might not be such a bad thing after the kind of run stocks have seen. At the very least, it would hardly be surprising. (For more on the risks of investing in stocks now, as well as alternatives, click here).

Stocks have been on a tear since the market bottomed in March, on bets that the second half of the year will bring a reasonably strong economic recovery and corporate profit growth, despite mixed evidence of those trends, at best, so far.

Since the market's March 11 low, the Dow has jumped 22.5 percent, leaving it up 10.5 percent so far this year. The Nasdaq is up 35.3 percent since March 11 and 28.8 percent year-to-date. The S&P 500 has gained 25.4 percent since the rally began, and is up 14.1 percent for the year.

This week brings second quarter earnings, with forecasts calling for growth of 5.3 to 5.5 percent from a year earlier, according to estimates from tracking firm First Call. The reporting season begins with a whimper, not a bang, as just eight of the companies in the S&P 500 are due to report results

Alcoa (AA: up $0.41 to $25.71, Research, Estimates) will be the first Dow industrial to report when it releases results Tuesday. The world's biggest aluminum producer probably earned 24 cents a share, according to forecasts, down 3 cents a share from a year earlier.

Later in the week, earnings from Yahoo!, PepsiCo, Genentech and, most significantly, General Electric are due.

"Of the earnings this week, I'll be looking at GE," said Peter Green, a market analyst at MKM Partners. "They're so broad-based in their business that what they have to say is going to be important."

Also due later Tuesday: the May reading on consumer credit, forecast down from the previous month. But the report is rarely a market mover.

The Nasdaq composite (up 57.25 to 1720.71, Charts) surged 3.4 percent, closing above 1,700 for the first time since May 20, 2002, led by strength in Microsoft.

The Dow Jones industrial average (up 146.58 to 9216.79, Charts) jumped 1.6 percent and the S&P 500 index (up 18.72 to 1004.42, Charts) gained 1.9 percent. While the Dow and the S&P 500 both lagged the Nasdaq, they still closed at their highest levels in about three weeks.

The same good cheer that has propelled the four-month-and-counting rally continued, aided by a report on the Financial Times Web site that Microsoft (MSFT: up $0.92 to $27.42, Research, Estimates), sitting on a cash stash of $46 billion, is considering giving $10 billion back to its shareholders in the form of a special dividend. The stock climbed 3.5 percent, giving a hefty boost to both the Dow industrial average and the Nasdaq, as well as the broader market.

Of the 30 components that comprise the Dow industrials, 27 closed higher.

Among the biggest gainers were Dow tech shares Hewlett-Packard (HPQ: up $0.75 to $22.05, Research, Estimates), which gained 3.5 percent, and IBM (IBM: up $2.14 to $86.09, Research, Estimates), which rose about 2.5 percent.

Procter & Gamble (PG: up $0.83 to $90.79, Research, Estimates) shares rose nearly 1 percent. U.S. antitrust regulators approved the company's deal to buy German hair care firm Wella for $6.3 billion.

The semiconductor sector was one of the session's best performers. Intel (INTC: up $1.19 to $22.91, Research, Estimates), also a Dow stock, jumped 5.5 percent.

Taiwan Semiconductor Manufacturing (TSM: up $0.22 to $11.05, Research, Estimates) reported second-quarter results up from a year earlier and above forecasts, due to strong June sales and new products from key clients such as nVidia (NVDA: up $1.54 to $25.05, Research, Estimates). TSM shares gained 2 percent.

Chip gear makers got a boost from a bullish Goldman Sachs note on the sector, saying that the companies could outperform the broader market ahead of a trade show due to start July 14 that is expected to be upbeat.

On the downside, Schering-Plough (SGP: down $0.72 to $18.34, Research, Estimates) fell 3.8 percent in active trading after the drugmaker warned that its second-quarter earnings will miss forecasts due to stiff competition.

Market breadth was positive. On the New York Stock Exchange, where 1.38 billion shares changed hands, and on the Nasdaq, where 1.81 billion shares traded, advancing issues top decliners by better than two to one.

Bonds fell in response to the stock market advance, with the 10-year Treasury note losing 19/32 of a point in price and seeing its yield climb to 3.73 percent. Bond prices and yields move in opposite directions.

Elsewhere, the dollar gained modestly versus other major currencies. Light sweet crude oil fell 29 cents to $30.13 in New York. Gold fell $2.90 to $348.40 an ounce in New York.

European markets mostly closed higher after most Asian stocks also posted hefty gains overnight.