Rising sales of previously owned U.S. homes and robust earnings from bellwethers representing consumer and industrial businesses, including Whirlpool Corp and Cummins Inc , pointed to a steady rebound in demand.
The housing data, followed by the ISM data yesterday and the GDP last week, is making investors believe that the strength in the fourth quarter was not a fluke, and that the strength could be sustainable in the first quarter and beyond, said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville, Tennessee.
The home builders received a double jolt of good news. In addition to a 1 percent gain in December pending sales of existing U.S. homes, D.R. Horton , one of the top five U.S. home builders, reported its first quarterly profit in almost three years. D.R. Horton's stock gained 10.9 percent to $13.21. The Dow Jones U.S. home construction index <.DJUSHB> rose 6.5 percent.
The Dow Jones industrial average <.DJI> rose 111.32 points, or 1.09 percent, to end at 10,296.85. The Standard & Poor's 500 Index <.SPX> gained 14.13 points, or 1.30 percent, to 1,103.32. The Nasdaq Composite Index <.IXIC> advanced 18.86 points, or 0.87 percent, to 2,190.06.
The S&P 500's gain was its biggest two-day percentage jump since October 2009, after falling 6.2 percent in the last three weeks of January.
The day's home sales data followed a string of encouraging economic news, including Monday's data on the U.S. manufacturing sector from the Institute for Supply Management, and Friday's report on the economy's fourth-quarter growth.
Shares of UPS added 0.4 percent to $58.62 after the world's largest package shipper by volume reported a drop in fourth-quarter profit, but forecast a sharp increase in 2010 earnings.
Whirlpool Corp gained 8.1 percent to $82.23 after the appliance manufacturer reported a sharp increase in first-quarter earnings.
Exposure to emerging markets helped major industrial companies Cummins Inc and Emerson Electric Co , post rosy quarterly earnings. Cummins' stock rose 8.8 percent to $51.09, while Emerson's stock jumped 10.1 percent to $46.77.
The S&P 500 industrial sector index <.GSPI> gained 1.9 percent.
Amazon.com Inc slid for a second straight day, falling 0.6 percent to $118.12 and curbing the Nasdaq's advance. Traders continue to fear that a pricing battle that Amazon lost with book publisher Macmillan could hurt sales volume growth for its Kindle e-reader.
In testimony before a Senate panel, White House adviser Paul Volcker urged Congress to rein in risky investing by big banks to help prevent them from becoming too big to fail.
Shares of JP Morgan Chase & Co rose 2.3 percent to close at $40.55 and ranked among the stocks giving the Dow its biggest boost, while Goldman Sachs' stock advanced 2.5 percent to $156.94.
Credit card companies' shares rose following a positive broker comment on the sector, with American Express up 2.1 percent at $39.02, and Capital One Financial up 1.8 percent at $37.43.
Volume was light on the New York Stock Exchange, with about 1.18 billion shares changing hands, well below last year's estimated daily average of 2.18 billion. But on the Nasdaq, about 2.50 billion shares traded, above last year's daily average of 1.63 billion.
Advancing stocks outnumbered declining ones on the NYSE by a ratio of about 4 to 1, while on the Nasdaq, about five stocks rose for every four that fell.
(Reporting by Angela Moon; Editing by Jan Paschal)