Investors returned to the market with enthusiasm following a holiday week of lighter trading, and the manufacturing report from the Institute for Supply Management contributed to their zeal, said Todd Leone, managing director of equity trading at SG Cowen Securities.

"I think a lot of people were off last week, so they’re coming in and buying today," Leone said. "Construction spending was good, but these ISM numbers have really pushed the market up."

According to preliminary results, the Dow closed up 116.59, or 1.2 percent, at 9,899.05, following a gain last week of 1.6 percent. The last time the index of 30 actively traded blue chip stocks closed higher was May 31, 2002, when it ended the day at 9,925.30; it last closed above 10,000 on May 24, 2002.

The Nasdaq composite index closed at its highest point in nearly two years, up 29.56, or 1.5 percent, at 1,989.82, after a weekly gain of 3.5 percent. The tech-dominated index last closed higher on Jan. 15, 2002, at 2,000.91.

The Standard & Poor’s 500 index also reached a significant high, rising 11.92, or 1.1 percent, to close at 1,070.12, after gaining 1.5 percent last week. The S&P last closed higher on May 28, 2002, when it stood at 1,074.55.

"The last two months of the year are traditionally a strong seasonal period for the market, and we’ve had a strong 10 months going into it," said Steven Goldman, chief market strategist at Weeden & Co. in Greenwich, Conn. "All in all, the markets are moving to new recovery highs here."

Manufacturing grew for a fifth straight month, according to the ISM report. The industry group’s manufacturing index rose to 62.8 last month from 57 in October.

Separately, the Commerce Department reported construction spending registered its best month on record in October, a promising sign for the recovery’s staying power. The total value of building projects in October came in at a seasonally adjusted $922 billion — a 0.9 percent increase over the previous month. Analysts had forecast a rise of 0.6 percent.

Investors were also keeping a close eye on retailers following the Thanksgiving weekend. Merrill Lynch called the weekend "a relative success" and predicted the retailing group would continue to perform well.

But Goldman Sachs was cautious on retailing bellwether Wal-Mart Stores Inc., saying heavy consumer spending in the fourth quarter could result in a pullback early next year.