Stocks rallied on Monday as a merger between two big banks in Greece suggested Europe was working through its financial problems, while a rebound in consumer spending calmed fears of a new recession.

Insurance company shares were higher after property damage from Hurricane Irene was less than feared, according to early estimates.

Travelers Cos Inc rose 4.7 percent to $50.59, while Allstate Corp jumped 7 percent to $25.93.

Wall Street was also relieved that hurricane damage in New York City, especially in lower Manhattan, was not as bad as expected. The New York Stock Exchange and the Nasdaq opened on schedule.

But trading volume was light at about 1.9 billion shares by late morning as many Wall Street workers were stuck at home with commuter rail and bus lines not operating. The New York City subway system slowly returned to service early Monday after a systemwide shutdown.

Financial stocks were the top gainers after Greece's Alpha and EFG Eurobank banks sealed a megamerger that is expected to trigger more deals to shore up the sector battered by a severe debt crisis and recession.

The S&P financial index <.GSPF> was up 2.7 percent and the KBW Banks index <.BKX> added nearly 2.8 percent. Bank of America Corp rose 4.6 percent to $8.12 and JPMorgan Chase & Co gained 2.3 percent to $37.03.

Keith Wirtz, chief investment officer at Fifth Third Asset Management, with $18 billion in assets, said: We've actually started putting cash to work. A few things helping the stock market. There's relief coming from the storm and Europe, particularly with Greece.

The Dow Jones industrial average <.DJI> jumped 174.94 points, or 1.55 percent, at 11,459.48. The Standard & Poor's 500 Index <.SPX> put on 21.37 points, or 1.82 percent, at 1,198.17. The Nasdaq Composite Index <.IXIC> advanced 51.48 points, or 2.08 percent, at 2,531.33.

U.S.-listed shares of National Bank of Greece soared 33 percent to $1.11, while European shares ended up 1.3 percent. <.EU>

Consumer spending recorded its largest increase in five months in July, supporting views the economy was not falling back into recession. Also, July pending home sales fell 1.3 percent, matching forecasts, but remained higher than year-ago levels.

(Additional reporting by Jennifer Ablan; editing by Jeffrey Benkoe)