Stocks Start Another Leg Up

Those of you expecting the market to do in 2011 what it did in 2010 are nearly 10% of the way there.

After a sleepy late December, the best stock picks jumped out of the gate on Monday and stayed there, stamping with some force the idea that the market’s four-month rally hasn’t run out of steam.

The Dow Jones Industrial Average jumped 93 points, or 0.8%, to 11,671 — another two-year high. The Nasdaq soared 39 points to 2692, while the S&P 500 gained 1.1% to 1272.

Ironically, it was news of a move to lower risk by Bank of America (NYSE:BAC) that helped spur the risk-on momentum by investors. The bank announced early Monday that it would take a $2 billion charge for settling buyback claims on home loans sold by formerly independent Countrywide Financial to Fannie Mae and Freddie Mac.

The news lifted Bank of America shares more than 6% to $14.19, returning the stock to a level not seen in five months. (Click here to read why BAC is one of the best stocks for 2011).

Financial stocks were also strong overall. The Financial Select Sector SPDR (NYSE:XLF) exchange-traded fund finished 2.2% higher to $16.30.

As benign as much of the morning’s newsflow was, however, many investors merely�saw the year-end momentum in stocks�playing right into the hands of bullish traders. “This should be no surprise � fund managers who wanted the losers off of their books are sitting with a bit of cash, and it gets put to work the first opportunity,” wrote Barry Ritholtz on his The Big Picture blog before the opening bell.

What will be interesting to watch is how well the rally proceeds through the week after this initial big step — or whether it needs more fuel beyond investors’ first-day enthusiasm.

Much of the other market data wasn’t as stimulating: the precious-metals trade was relatively quiet, commodities were mixed on average, and bond yields ticked back up to 3.34%.

Less quiet was the increasingly compelling story of rare-earth metals. As we mentioned last week, this sector, initially brought to life after a plan by China to cap its own exports of rare-earth metals, has become a speculative darling in a few short weeks.

The Market Vectors Rare Earth/Strategic Earth Metals (NYSE:REMX) ETF jumped another 6.8% and is now up nearly 24% since Dec. 20.

Also winning on Monday was natural gas — perhaps the worst asset class in all of 2010. Prices jumped 5.5% on the recent colder-than-average temperatures across the coun