Banks and technology shares led the S&P 500 and Nasdaq to multi-year highs on Tuesday as U.S. retail sales exceeded expectations last month and concerns eased about the euro zone's crisis.

Euro-zone finance ministers gave final approval to a second bailout for Greece, and a German index of analysts' and investors' sentiment rose much more than expected in March.

Data in the United States once again indicated a slowly improving domestic economy, as retail sales recorded their largest gain in five months in February despite rising gasoline prices.

Europe has improved from a crisis situation to a chronic condition, said Stephen Wood, chief market strategist at Russell Investments in New York. The data in America continues to grind upward, and investors can more effectively assess risk.

Underscoring the upbeat sentiment, the CBOE Volatility Index or VIX, <.VIX> fell to levels not seen since mid-2007. Its 14-day moving average is at its lowest since last June.

Analysts say the lack of volatility has helped dry up volume, as high-frequency traders see fewer opportunities for quick gains. But others worry that low volume points to a lack of commitment to the market that can make it vulnerable.

Monday's volume of 5.24 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq represented the lowest tally of the year and was 33 percent below last year's daily average during March.

The Dow Jones industrial average <.DJI> rose 121.13 points, or 0.93 percent, to 13,080.84. The S&P 500 Index <.SPX> gained 13.32 points, or 0.97 percent, to 1,384.41. The Nasdaq Composite <.IXIC> added 32.87 points, or 1.10 percent, to 3,016.53.

The S&P 500 index reached 1,384.75, its highest intraday level since June 2008, and the Nasdaq Composite hit 3,017.42, its highest mark since December 2000.

The PHLX housing sector index <.HGX> hit its highest level since May 2010, and a banking sector index <.BKX> was at a seven-month high.

Later in the session, investors will look to the U.S. Federal Reserve, which is expected to hold steady on monetary policy when it concludes its one-day meeting, acknowledging a mildly brighter economic outlook while refraining from any suggestion that further easing is now off the table.

Fed officials also are expected to nod to the labor market's stronger pulse in a statement due at about 2:15 p.m. (1815 GMT).

To the extent the market is expecting more quantitative easing form the Fed, there will be disappointment, said Wood. If they are expecting a continuation of policy with no radical changes, they'll be happy.

Markets were unnerved recently after Fed Chairman Ben Bernanke stopped short of giving a strong signal of more economic stimulus during congressional testimony.

The European Union, the United States and Japan formally asked the World Trade Organization to settle a dispute with China over restrictions on exports of raw materials, including rare earth elements critical to electronics makers.

Beijing said the export curbs were motivated by environmental concerns, adding that it would defend itself.

Shares of Molycorp , a rare earth oxide producer that owns a rare earth project outside of China, shot up 7.7 percent to $32.17. The company's stock has seen daily moves of at least 4 percent more than a dozen times this year.

Despite the upbeat retail data, shares of Urban Outfitters Inc dropped 5.3 percent to $27.96 after it said it expects margins to continue to be pressured.

(Reporting by Rodrigo Campos; Editing by Jan Paschal)