U.S. stocks advanced in early trade on Tuesday as sentiment was buoyed by President Barack Obama's announcement of an agreement with Republicans on a plan to extend income tax cuts for all Americans.

The S&P 500 Index advanced 11.22 points, or 0.92 percent, to trade at 1,234.43 at 9:50 a.m. EDT. The Dow Jones Industrial Average gained 85.71 points, or 0.75 percent, to trade at 11,447.90. The Nasdaq Composite Index gained 0.95 percent.

Obama and Congressional Republicans came to a compromise late on Monday involving tax break extensions for wealthier Americans and unemployment insurance extensions for working class families.

The agreement would extend all Bush-era tax cuts for two years, extend unemployment insurance for an additional 13 months and reduce payroll taxes by 2 percent for all workers for a full year.

On the corporate front, U.S. listed shares of Unilever advanced 3.99 percent after the company was upgraded to overweight from underweight by Morgan Stanley on Tuesday.

Citigroup shares advanced 3.37 percent after the government sold off its remaining 2.4 billion shares in the bank for $4.35 each.

Spectrum Pharmaceuticals Inc. advanced 4.62 percent after the company said its ZEVALIN drug showed positive results in the first phase 2 clinical trial to treat patients with a type of cancer called follicular non-Hodgkin's lymphoma.

Among the Dow components, Bank of America advanced 1.12 percent and Alcoa advanced 1.37 percent, while Chevron and Caterpillar gained more than 1.75 percent.

The euro advanced 0.52 percent to 1.3378 against the dollar and the yen gained 0.22 percent against the greenback.

Crude oil futures rose 0.79 percent to $90.09/barrel on weaker U.S. dollar and gold futures advanced 0.88 percent.

European stock markets are currently trading higher with FTSE 100 up by 77.04 points, DAX30 up by 84.11 points and CAC 40 up by 83.17 points.