Stocks edged higher on Tuesday, led by the financial sector as economic data pointed to a sustained if slow recovery from the recession, taking the Dow and the S&P 500 to nine-month highs.

The Nasdaq achieved its highest close since early October.

U.S. consumers spent more in June, though partly because of rising gasoline prices, and contracts to buy used houses rose more than expected. But income suffered its biggest drop in four-and-a-half years, underscoring fears over growing unemployment.

The S&P financial index <.GSPF> rose 2.1 percent as the housing data was a positive for the sector, while the Dow Jones Home Construction index <.DJUSHB> gained 2.5 percent.

The one thing that's driving this market more than anything is the fear that as an investor, you're missing out on something big, said Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets in Baltimore.

There's so much power to this rally that a little move down is a correction, and invites more investors in, he said.

The Dow Jones industrial average <.DJI> gained 33.63 points, or 0.36 percent, to close at 9,320.19. The Standard & Poor's 500 Index <.SPX> rose 3.02 points, or 0.30 percent, to 1,005.65. The Nasdaq Composite Index <.IXIC> edged up 2.70 points, or 0.13 percent, to end at 2,011.31.

Shares of Dow component Caterpillar , a heavy equipment maker, jumped 6.1 percent to $47.89 after the company's CEO gave an upbeat earnings presentation and said that in future recessions, the company would be able to report annual earnings well above this year's forecast.

PepsiCo Inc
shares rose 5.1 percent to $59.06 after it said it agreed to buy Pepsi Bottling Group Inc
and PepsiAmericas Inc
in a deal worth $7.8 billion, as the second-largest soft drink maker behind Coca-Cola Co seeks to cut costs and boost profits in North America.

Shares of Pepsi Bottling gained 8.5 percent to $36.49 and PepsiAmericas jumped 9 percent to $28.50.

Two of the largest U.S. mall owners, Simon Property Group Inc and Macerich Co , posted lower results as consumers remain reluctant to spend, but the companies' CEOs said retail declines appear to be abating and shares jumped.

Simon Property, up 6.9 percent at $60.91, was the top point gainer in the Dow Jones Equity REIT index <.DJR>, which jumped 5.3 percent.

The current earnings season fueled the second leg of a stocks rally that started in March, but stalled in June; the advance has taken the broad S&P 500 index up 48.6 percent from its 12-year closing low hit on March 9.

(Reporting by Rodrigo Campos; Editing by Jan Paschal)