Dow tops 14,000, hits record

NEW YORK (CNNMoney.com) -- Stocks rallied Monday, with the Dow closing at an all-time high on bets that the big banks are starting to put the worst behind them - and on hopes that the Federal Reserve will continue cutting interest rates.

The Dow Jones industrial average (Charts) added nearly 192 points to end at an all-time high of 14,087.55. Earlier in the session, the Dow had hit 14,115.51, a new record intraday high. The previous intraday high was 14,021.95 from July 19.

The tech-fueled Nasdaq composite (Charts) gained 1.5 percent and carved out a new 2007 record, closing at its highest point since Feb. 2001.

The broader S&P 500 (Charts) index climbed 1.3 percent. The Russell 2000 (Charts) small-cap index jumped 2.4 percent.

"You're seeing a continuation of the recent momentum," said Chris Johnson, CEO of Johnson Research Group.

"It becomes a psychological phenomenon," he said. "Investors know that there are inherent risks in the market, but at the same time, they're rationalizing any bad news."

Wall Street was also perhaps betting that any so-called "bad news," whether it be weak bank earnings or a dip in the ISM index, means the Fed is more likely to cut interest rates again at its next policy meeting at the end of the month.

Tuesday brings the August pending home sales report in the morning.

Stock gains were broad based on the first day of the fourth quarter, with 28 out of 30 Dow issues rising, including Citigroup (Charts, Fortune 500).

Citigroup warned that its third-quarter earnings could slump 60 percent because of $3 billion in write-downs the company had to take due to subprime-backed securities. However, the company also said that it was a one-time issue and that the current quarter should be better.

"A lot of today's advance is driven by financials and Citi's statement that the problems are specific to this quarter helps," said Timothy Ghriskey, chief investment officer at Solaris Asset Management.

Also helping lift the stock: rumors that CEO Chuck Prince might be forced to step down, or that the company could announce a big restructuring plan, Ghriskey said.

Similar factors helped UBS (Charts), Ghriskey said, as investors welcomed news of a management shuffle at the Swiss bank. Those staffing changes helped take the sting out of the company's warning that it will take a $3.4 billion write-down in the third quarter and post a quarterly loss, because of subprime-related losses.

A variety of bank stocks rose, boosting the Amex Securities Broker/Dealer index by 2.7 percent.

"What the market is saying is that the worst in financials seems to be over and you have some decent values here, since the sector has been so beaten up," Ghriskey said.

However, more banks may join the red-flag parade going forward, analysts say.

Stocks also benefited from a new round of deal news. Nokia (Charts) said it is buying navigation-software maker Navteq for $8.1 billion. Typically, big deal announcements support the broader market as they are seen as a sign of corporate confidence.

One of Navteq's biggest customers, Garmin (Charts), slumped more than 10 percent in unusually active Nasdaq trading.

On the downside, Acxiom (Charts) said that the private equity firms that had agreed to buy the data management company for $2.25 billion have backed out of the deal.

Pulte Homes (Charts, Fortune 500), Centex (Charts, Fortune 500) and Lennar (Charts, Fortune 500) rallied after Citigroup upgraded them to "buy" from "hold" as part of a broader note on the homebuilding sector.

Intel (Charts, Fortune 500), Apple (Charts, Fortune 500), Applied Materials (Charts, Fortune 500) and Micron Technology (Charts, Fortune 500) were among the big cap technology stocks rising.

Among losers, Walgreen (Charts, Fortune 500) shares slumped after the grocery chain reported quarterly profit that was short of forecasts, sending shares tanking in active New York Stock Exchange trade.

Market breadth was positive. On the New York Stock Exchange, winners topped losers 3 to 1 on volume of 1.42 billion shares. On the Nasdaq, advancers topped decliners 7 to 3 as 1.96 billion shares changed hands.

In economic news, the Institute for Supply Management said its September manufacturing index fell to 52.0 from 52.9 the previous month. Economists surveyed by Briefing.com thought it would fall to 52.5.

Stocks eased Friday at the end of a strong week and month on Wall Street. It was also the last day of a tumultuous third quarter that saw the major gauges ultimately post gains after the Federal Reserve cut interest rates for the first time in four years.

Oil prices fell Monday. U.S. light crude for November delivery lost $1.42 to settle at $80.24 a barrel on the New York Mercantile Exchange.

COMEX gold for December delivery rose $4.10 to settle at $754.10 an ounce.

Treasury prices inched higher, lowering the yield on the 10-year note to 4.55 percent from 4.58 percent late Friday. Bond prices and yields move in opposite directions.

In currency trading, the dollar neared another all-time low versus the euro and inched higher versus the yen.