Investors initially saw the cease-fire between Israel and Lebanon as a buying opportunity after last week's losses, and the Dow Jones industrial average surged as much as 115 points. Light trading volumes, however, pointed to a lack of depth to the buying, and stocks retreated.

Analysts had warned that the rally could be short-lived due to a pair of important inflation reports due later in the week: the Labor Department's producer price index tomorrow and the consumer price index on Wednesday. With the Federal Reserve warning the markets last week that inflation remains a concern, stocks could revert to the volatility of recent weeks if incoming economic data shows rising prices on the wholesale or consumer levels.

"We're up now on the cease-fire and oil prices, but it's hard to be an optimist right now, at least in the short term, because of the uncertainty over the economy and rates and the Fed," said Jay Suskind, head trader at Ryan Beck & Co. "As the week wears on, everybody's going to be focusing on the economic numbers and the debate over inflation will come back again."

Crude futures fell as traders saw less risk of a supply disruption in the Middle East after the United Nations-mandated cease-fire took effect. A barrel of light crude settled at $73.53, down 82 cents, on the New York Mercantile Exchange.

According to preliminary calculations, the Dow rose 9.84, or 0.09 percent, to 11,097.87. The Dow lost 1.36 percent last week.

Broader stock indicators also rose. The Standard & Poor's 500 index added 1.47, or 0.12 percent, to 1,268.21, and the Nasdaq composite index gained 11.33, or 0.55 percent, to 2,069.04.

Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 5.00 percent from 4.97 percent late Friday. The dollar dropped against other major currencies, while gold prices fell.

While advancing issues outnumbered decliners by nearly 9 to 7 on the New York Stock Exchange, preliminary consolidated volume remained light, totaling 2.14 billion shares, compared with 2.03 billion traded Friday.

"You get this spike up on light volume, you just don't have staying power," said Scott Wren, equity strategist for A.G. Edwards & Sons. "There's nothing more to this rally than relief over the Middle East, and you've got the economic data later in the week. I just don't think you can put too much into what's happening today."

A late-session report from the Philadelphia Federal Reserve may have also contributed to the rally's retreat. The Fed's survey of 51 economic forecasters called for slowing economic growth and higher inflation in the near term — one of Wall Street's worst-case scenarios that would lead to shrinking corporate profits and lower stock prices.

In corporate news, PepsiCo Inc. announced that Chief Financial Officer Indra K. Nooyi would take over as chief executive Oct. 1, replacing the retiring Steven Reinemund. PepsiCo added 62 cents to $63.95.

Apple Computer Inc. rose 29 cents to $63.94 after the computer maker said late Friday a delay in its quarterly filing with the Securities and Exchange Commission meant that it was out of compliance with Nasdaq Stock Market listing rules. The company, which put off the filing as it evaluates how it handled stock option grants, said it was working with Nasdaq to keep its listing, and the stock would continue trading normally.

Shares of automakers were in play after analysts at Bear Stearns upgraded Ford Motor Co. two steps, to "outperform" from "underperform," while downgrading General Motors Corp. from "outperform" to "peer perform." In a report, analysts said there was more potential from Ford than GM at the moment. Ford gained 46 cents, or 6.2 percent, to $7.83, while GM nevertheless rose 9 cents to $30.20.

Among companies reporting earnings, food service distributor Sysco Corp. added 25 cents to $28.21 after reporting fiscal fourth-quarter earnings that fell 11 percent due to higher transportation and pension costs. The company missed Wall Street forecasts by a penny per share.

The Russell 2000 index of smaller companies was up 2.69, or 0.4 percent, at 681.73.

Overseas, Japan's Nikkei stock average surged 1.88 percent. In Europe, Britain's FTSE 100 closed up 0.87 percent, France's CAC-40 rose 1.23 percent for the session and Germany's DAX index added 1.13 percent.