Stocks advanced on Tuesday and were near session highs as investors showed a muted reaction to the S&P's recent downgrade warning for the euro zone.

After Standard & Poor's said Monday it may cut the sovereign credit rating of 15 euro-zone countries, the rating agency threatening on Tuesday to cut the credit rating of its financial rescue fund.

Investors shrugged off the warning from the rating agency as an expected move in light of the region's debt problems while pointing to meetings of euro-zone leaders later in the week for more direction.

Honestly, I don't think anyone is extremely surprised by more potential downgrades in the European front, said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research, in Cincinnati.

You throw in potential downgrades on 15 out of 17 European countries, and it is encouraging for the market to show this much resilience as overbought near-term as it is.

U.S. equities rallied last week to their best performance in nearly three years on improving domestic economic data and optimism over steps being taken in the euro zone to tackle their debt crisis.

The Dow Jones industrial average <.DJI> gained 110.42 points, or 0.91 percent, to 12,208.25. The Standard & Poor's 500 Index <.SPX><.INX>rose 8.51 points, or 0.68 percent, to 1,265.59. The Nasdaq Composite Index <.IXIC> added 7.31 points, or 0.28 percent, to 2,663.07.

At the summit on Thursday and Friday, France and Germany are expected to try to force changes to EU rules to impose mandatory penalties on countries that exceed deficit targets in hopes of restoring market confidence.

In an interim report, European Council President Herman Van Rompuy told EU leaders tighter oversight of euro-zone fiscal policy can be achieved through minor rapid adjustments to the EU treaty.

General Electric Co was the Dow's top percentage gainer, climbing 3.1 percent to $16.85 after Bernstein upgraded the stock to outperform, citing strong financial fundamentals and expected dividend increases.

Fellow Dow component 3M Corp rose 1.9 percent to $82.48 after the diversified manufacturer forecast 2012 earnings and revenue largely in line with expectations as well as modest margin improvement.

AMR Corp jumped 64 percent to 69 cents after the bankrupt parent of American Airlines named Beverly Goulet, the carrier's treasurer, as the chief restructuring officer to oversee the Chapter 11 bankruptcy.

On the downside, Darden Restaurants Inc slumped 11.7 percent to $42.15 after it cut its fiscal 2012 earnings and sales forecast.

(Reporting By Chuck Mikolajczak; Editing by Jan Paschal)