Strong U.S. consumer confidence helped stocks advance on Tuesday and the S&P 500 to pierce the key 1,370 point level, while oil prices suffered their biggest one-day drop in 2-1/2 months.

The dollar fell and the euro rose in anticipation of a huge offering of cheap cash from the European Central Bank to banks.

Oil tumbled, falling for a second day after Monday's correction snapped a week-long rally. London's Brent crude sank 2 percent for its sharpest loss since December 14.

There is some concern growing that high oil prices may impact the economy and oil demand in future, said Carsten Fritsch, analyst at Commerzbank in Frankfurt.

That is leading to profit-taking, which is not surprising given the huge build in speculative net long positions in recent weeks.

Despite the correction, Brent prices are still up 13 percent on the year while U.S. crude shows an 8 percent gain from a rally through most of February sparked by tensions over Iran's nuclear program and other supply-related tensions in the Middle East.

Stocks on Wall Street continued with their upward trend as consumer confidence in the world's largest economy rose to a one-year high in February, according to a survey that took into account optimism about the labour market versus concerns over rising gasoline prices.

Consumer confidence is key to the U.S. economy, as consumer spending makes up more than two-thirds of economic activity.

This continues the trend we've seen over the past few months, where we're getting data that indicates things are getting better, said Mike Shea, managing partner and trader at Direct Access Partners in New York.

The impact from the consumer confidence reading was, however, offset by data showing orders for U.S. durable goods fell the most in three years in January. Another report indicated a decline in home prices in December.

They are focusing on the positive and eliminating the negative reports, which I am very interested in because durable goods was tough - it was a big miss, said Ken Polcari, managing director of ICAP Equities in New York.

The fact is, those couple of reports that came out today are clearly conflicted, clearly mixed. So once again, we are kind of stuck in the middle.

U.S. Treasuries initially rallied as the drop in durable goods orders suggested the economy started the year weaker-than-thought. The stronger consumer confidence data then trimmed some of the gains in bonds.

The S&P 500 <.SPX> index hit a session high above 1,373, keeping alive February's rally in stocks. The technology-laced Nasdaq index <.IXIC> hit an intraday peak not seen since 2000 as shares of some chipmaking companies outperformed.

Some analysts cautioned that the run-up in equities has been on light volume and said any more gains could trigger selling.

Daily volume on the New York Stock Exchange, NYSE Amex and Nasdaq has averaged 6.89 billion shares so far in February. The average in February 2011 was 7.81 billion.

Still, an S&P close above 1,370 could invite momentum buying as money managers chase performance.

From that standpoint, it would be good for us to close above 1,370, Shea said. If we get any sort of uptick in volume, that will be very positive for the market. If volume stays at this level, it might be more likely that we pull back.

The Dow Jones industrial average <.DJI> was up 16.12 points, or 0.12 percent, at 12,997.63. The Standard & Poor's 500 Index <.SPX> was up 1.99 points, or 0.15 percent, at 1,369.58. The Nasdaq Composite Index <.IXIC> was up 11.93 points, or 0.40 percent, at 2,978.09.

Wall Street's strength was shadowed by a rebound in world stocks and European shares.

Global stocks, measured by the MSCI ACWI <.MIWD00000PUS>, rose 0.5 percent. The FTSEurofirst 300 <.FTEU3> index of leading European shares ended up 0.2 percent, after being down 0.3 percent earlier.

The euro was lifted by the European Central Bank's looming cash boost for banks, even as some investors worried that the benefits of a second injection of cheap money may be short-lived.

The single currency was up 0.5 percent at $1.3460 to the dollar, within view of Friday's three-month peak of $1.3487.

Markets expect European banks to borrow about 500 billion euros ($670 billion) of the cheap funds on offer from the ECB on Wednesday, although forecasts range from 200 billion to 750 billion euros.

The euro has priced in a cash injection of 500 billion euros and anything above 600 billion will be risk positive and push the euro higher, said Ankita Dudani, G-10 currency strategist at RBS Global Banking.

The benchmark 10-year U.S. Treasury note was up 3/32, its yield at 1.9359 percent.

People looked at the durable goods and said: 'That's shocking,' said Trevor Coote, head of equity sales at Alexander David Securities.

While the durable goods data was disappointing, analysts did not think it was a game changer.

When you look at all the details, the headline was weak, the core orders were weak. It's pretty hard to spin this as anything other than a slight disappointment, emphasis on slight, said Nick Bennenbroek, head of FX Strategy at Wells Fargo in New York.

(Additional reporting by Rodrigo Campos and Robert Gibbons in New York and Richard Hubbard in London; Editing by Dan Grebler)