* S&P 500 extends gains after strongest first half since 1998
* Onyx Pharma soars, company considering selling itself
* Dow up 1.1 pct, S&P 500 up 1.2 pct, Nasdaq up 1.5 pct
U.S. stocks kicked off the third quarter on a Monday with gains of 1 percent or more, supported by data that showed U.S. manufacturing bounced back in June and construction spending hit a four-year high.
The Dow shot up more than 160 points in a broad advance that built on the strongest first half of a year since 1998 for the S&P 500. For the first six months of 2013, the S&P 500 gained 12.6 percent.
This year's gains have largely been driven by the Fed's bond-buying policy, which helped lift the Dow industrials and the S&P 500 to record closing highs in late May. The rally was interrupted by concern about the future of the Federal Reserve's stimulus program, which triggered a selloff in stocks. June was the S&P 500's first negative month since October.
Stocks extended strong gains mid-morning as data from the Institute for Supply Management showed U.S. manufacturing activity grew in June, rebounding from an unexpected contraction in May. Construction spending neared a four-year high in May, according to the Commerce Department.
"People saw ISM was stronger and slightly higher than consensus and decided to run with it," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.
Reallocation of cash from bonds and into stocks as the new quarter begins could be behind the strength the market showed even before the data, Forrest said.
Investors pulled $23.3 billion out of bond funds during the week to last Wednesday, the biggest outflow since records started in 1992, data from EPFR Global and Bank of America Merrill Lynch showed.
The Dow Jones industrial average rose 162.29 points or 1.09 percent, to 15,071.89, the S&P 500 gained 19.43 points or 1.21 percent, to 1,625.71 and the Nasdaq Composite added 49.77 points or 1.46 percent, to 3,453.01.
While Wall Street showed some signs of stabilization last week as comments from Fed officials assured traders the U.S. central bank's stimulus program would not be slowed imminently, the transition to a no-stimulus environment is expected to result in further volatility.
Overseas strength added to the positive tone. An index of Chinese shares rose 0.8 percent after Beijing policymakers assured investors that there was ample liquidity in the system.
In corporate news, Jefferies & Co raised its price target on Tesla Motors' stock to $130 from $70, saying the electric car maker was on track to deliver 21,000 Model S cars in 2013. Tesla's stock shot up 6.3 percent to $114.08.
Onyx Pharmaceuticals Inc surged 51 percent to $131.11 after the company said it was considering selling itself, though it had rejected a roughly $10 billion bid from Amgen Inc. Canaccord Genuity raised its price target on the stock to $140 from $105.
In other pharmaceutical-related news, Insmed Inc slid 15.1 percent to $10.15 after its experimental lung infection drug fared no better than a competing one developed by Novartis AG in a lung function test.