Music star LL Cool J kicked off Monday trading in New York

Fresh optimism about prospects for the economy and company profits led to a rebound on Wall Street.

It was a particularly good day for technology stocks after the tech-heavy Nasdaq shot up almost 3.5% to finish at 1,721.25 points, its highest close since 17 May 2002.

The Dow Jones industrial average, meanwhile, jumped 146.58 points, or 1.62%, to close at 9,216.79.

"There is a willingness to believe in the longer-term prospects," said Paul Cherney, chief market analyst at S&P Marketscope.

What we're experiencing today is investors trying to get ahead of earnings releases Neil Massa John Hancock Advisors

"People are willing to buy without the tangible, physical headline proof that earnings have really become robust."

This week US companies start reporting financial results for the second quarter of the year.

"What we're experiencing today is investors trying to get ahead of earnings releases," added Neil Massa, equity trader at John Hancock Advisors.

Fresh highs

Shares in semiconductors were among the top gainers, following talk of a better outlook for the sector.

Investors are "feeling better about the economy looking out 12 to 18 months, and semiconductors have been some of the favourite vehicles of investors to play this rally," said Eric Rothdeutsch, a semiconductor analyst for Friedman, Billings, Ramsey.

Microsoft's stock also headed upwards following a newspaper report that it was considering paying its shareholders a special dividend of more than $10bn.

Microsoft and chip maker Intel were the biggest percentage gainers in the Dow and helped to lift the Nasdaq as well.

Microsoft advanced 92 cents, or 3.5%, to $27.42, while Intel gained $1.19, or nearly 6%, to $22.91.

Hostile takeover

The upbeat mood on Wall Street helped push European stock markets higher.

London's FTSE 100 index ended the day 1.3% higher, while Paris's Cac-40 and Frankfurt's Dax both closed up by 3% and more.

European markets were also boosted by news that French aluminium group Pechiney was the subject of a hostile takeover attempt by Canadian rival Alcan.

A report that carmaker VW wants to buy into German trucks group MAN also cheered investors.

"The markets are especially helped by Pechiney and the MAN story. It tells us that these stocks are cheap to some extent," said Ulf Mortizen, fund manager at Nordinvest in Hamburg.