An upbeat outlook from FedEx, coupled with encouraging home sales, lifted U.S. stocks on Monday, keeping the S&P 500 above 1,100 for a second day and suggesting the rally could last.

FedEx Corp raised its outlook, boosting its stock by 5.6 percent. The news from the package delivery and business services company validates the optimism of those who believe the economic recovery is less fragile than recently thought.

FedEx was very real, on top of UPS (last week), so if the economy is slowing, people are still shipping a lot of stuff around for a slowing economy, said Stephen Massocca, managing director of Wedbush Morgan in San Francisco.

The S&P 500 closed above the 1,100 level for the second straight session, which some investors feel is of key importance because it represented the top of a trading range the benchmark index had failed to break several times in the past month. In another milestone, the S&P 500 also rose above its 200-day moving average of 1,113.71.

There is a certain psychological victory there, Massocca added.

FedEx closed at $83.39, helping the Dow Jones Transportation Average <.DJT> gain 2.6 percent.

A surprising 23.6 percent jump in new home sales in June from May countered some disappointing data in recent weeks that had increased concerns the economy may slip back into recession.

The Dow Jones U.S. Home Construction <.DJUSHB> Index gained 2.9 percent. PulteGroup Inc , up 4.7 percent at $9.07, led the home builders' index higher.

The Dow Jones industrial average <.DJI> gained 100.81 points, or 0.97 percent, to 10,525.43. The Standard & Poor's 500 Index <.SPX> rose 12.35 points, or 1.12 percent, to 1,115.01. The Nasdaq Composite Index <.IXIC> advanced 26.96 points, or 1.19 percent, to 2,296.43.

Monday's gains pushed the Dow up 0.9 percent for the year to date and lifted the Nasdaq 1.2 percent for the year so far, while the S&P 500 closed just shy of break-even, as the indexes have clawed back from declines from late April's closing highs.

The S&P 500 rose 7.8 percent during the three weeks ended Friday, the largest gain in such a period since the first week of August 2009.

Genzyme Corp jumped on takeover speculation, as the Wall Street Journal said Britain's GlaxoSmithKline Plc had recently made a very casual approach, to the U.S. biotech company, while Bloomberg reported Genzyme had rebuffed an offer from Sanofi-Aventis .

Genzyme surged 7.8 percent to $67.38.

BP Plc is expected to install an American known for diplomacy as chief executive, replacing Tony Hayward who has come under fire for his gaffe-prone handling of the worst oil spill in U.S. history.

Bob Dudley, the U.S. executive managing the response operation to the spill in the Gulf of Mexico, is poised to get the top job in the next 24 hours, a move that could soften U.S. criticism of the major British oil company, sources close to BP say.

U.S.-listed shares of BP gained 4.9 percent to $38.65.

Volume was light with about 7.49 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, short of last year's estimated daily average of 9.65 billion.

Advancing stocks handily outnumbered declining ones on the NYSE by a ratio of 4 to 1, while on the Nasdaq, more than three stocks rose for every one that fell.

(Reporting by Chuck Mikolajczak; Editing by Jan Paschal)