Stocks bounce back up

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Bank of America and Chevron are added to the Dow Jones Industrial Average, which bids adieu to Honeywell and Altria. Play video

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NEW YORK (CNNMoney.com) -- Stocks rallied Monday, with tech, retail and commodity shares sparking a broader advance as investors set aside worries about AIG's financials and Yahoo's rejection of Microsoft's proposed takeover.

The Dow Jones industrial average (INDU) rose 0.5%, according to early tallies, with weakness in AIG offset by strength in General Motors, reporting results after the close.

The broader Standard & Poor's 500 (SPX) index gained 0.6% and the Nasdaq composite (COMP) climbed 0.7%.

Stocks had slumped in the morning after Dow component AIG's regulatory filing raised bets that the insurer will have to write off more bad bets on mortgage debt.

The company said in a filing that that the value of its risky debt portfolio has plunged more than it initially thought, and that it is going to have to change the way it values certain complex credit vehicles. (Full story).

AIG (AIG, Fortune 500) shares plunged 11% and dragged on other financial stocks throughout the session.

"There's a lot of uncertainty in the financial sector," said Dave Hinnenkamp, CEO at KDV Wealth Management.

The current concerns about the economy combined with the political uncertainty surrounding this year's election are creating "a slight-bear bias" in the market, Hinnenkamp said.

But the broader market improved as the session wore on, with a variety of stocks bouncing back after last week's slump.

Among Dow gainers, GM (GM, Fortune 500), Home Depot (HD, Fortune 500), Wal-Mart Stores (WMT, Fortune 500), Intel (INTC, Fortune 500) and Boeing (BA, Fortune 500) were the biggest gainers.

Shares of Honeywell (HON, Fortune 500) and Altria (MO, Fortune 500) both slipped on news that Dow Jones will be removing the two companies from the industrial average starting next week. The two companies will be replaced by Bank of America (BAC, Fortune 500) and Chevron (CVX, Fortune 500), reflecting the growing weight of the financial and energy sectors in today's market.

Yahoo seeks higher bid. Shares of Yahoo (YHOO, Fortune 500) jumped after the company rejected Microsoft's $44.6 billion takeover bid as too low, raising bets that Microsoft will up the ante.

Microsoft (MSFT, Fortune 500) shares lost 1%.

Also on the tech front, Motorola (MOT, Fortune 500) and Nortel Networks (NT) are reportedly in talks about a deal to combine their wireless-infrastructure units, according to a Wall Street Journal report Monday.

Market breadth was positive. On the New York Stock Exchange, winners beat losers nine to seven on volume of 1.12 billion shares. On the Nasdaq, advancers topped decliners 8 to 7 on volume of 1.78 million shares.

Other markets. Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.62% from 3.64% late Friday. Bond prices and yields move in opposite directions.

In currency trading, the dollar fell against the euro and the yen.

U.S. light crude oil for March delivery added $1.82 to settle at $93.59 a barrel on the New York Mercantile Exchange. Crude prices are being pressured by concerns that Venezuelan President Hugo Chavez will cut off his country's oil supply to the United States after Exxon Mobile was authorized to freeze $12 billion in assets belonging to Venezuela's recently nationalized oil interests.

COMEX gold for April delivery gained $4.40 to $926.70 an ounce.