The S&P 500 and Nasdaq hit multi-year highs on Tuesday as U.S. retail sales rose more than forecast last month and as concerns eased about the euro zone's crisis.

Euro-zone finance ministers gave final approval to a second bailout for Greece, and data in Germany showed analyst and investor sentiment rose significantly 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 <.VIX> fell to levels not seen since mid-2007. Its 14-day average is at its lowest since last June.

Analysts say the lack of volatility has helped dry up volume, as high-frequency traders see less opportunities for quick gains. But others worry the low volumes point 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 88.32 points, or 0.68 percent, to 13,048.03. The S&P 500 Index <.INX> gained 9.61 points, or 0.70 percent, to 1,380.70. The Nasdaq Composite <.IXIC> added 23.11 points, or 0.77 percent, to 3,006.77.

The S&P 500 index reached its highest intraday level since June 2008, and the Nasdaq Composite hit 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.

Despite the upbeat retail data, shares of Urban Outfitters Inc dropped 4.6 percent to $28.16 after it said it expects margins to continue to be pressured.

(Reporting by Rodrigo Campos; Editing by Padraic Cassidy)