U.S. stocks climbed on Tuesday as the market's focus shifted to signs of economic strength and away from geopolitical concerns.

Investors seemed less jittery about the turmoil in Egypt as major stock indices rose more than 1 percent. The CBOE Volatility Index. Wall Street's so-called fear gauge, dropped for a second day, falling more than 10 percent.

Pfizer Inc shares rose 5.1 percent to $19.15 after the Dow component's income and revenue topped estimates. The drugmaker also announced a new share-repurchase program of up to $5 billion of its common stock.

Suggesting ongoing improvement in economic growth, U.S. manufacturing sector expanded at its fastest pace in seven years in January, according to the Institute for Supply Management.

Manufacturing seems to clearly be an area of strength, and it is the combination of manufacturing picking up and the consumer picking up, that's most of the economy. said Eric Kuby, chief investment officer at North Star Investment Management Corp in Chicago.

The Dow Jones industrial average was up 137.52 points, or 1.16 percent, at 12,029.45. The Standard & Poor's 500 Index gained 21.22 points, or 1.65 percent, at 1,307.34. The Nasdaq Composite Index rose 53.48 points, or 1.98 percent, at 2,753.56.

Trading volume was 4.6 billion shares by early afternoon trade, with advancing stocks beating declining ones by a ratio of around 4 to 1.

More than 200,000 Egyptians poured into central Cairo in the biggest demonstration so far against President Hosni Mubarak's authoritarian rule.

Oil prices, which had risen in the past couple of days, fell 0.2 percent to $91.99 a barrel, suggesting less worry about supply problems in the Middle East.

U.S. investors also continued to search for Egyptian markets exposure. The Van Eck Market Vectors Egypt Index exchange-trade fund was up 1.9 percent after a 7.9 percent jump Monday. The ETF is one of the main instruments for U.S. investors seeking exposure to Egyptian markets.

United Parcel Service Inc rose 4.4 percent to $74.76 after profit at the world's largest package delivery group beat estimates and it forecast record-high earnings in 2011.

Supporting the Nasdaq, Baidu shares gained 8.8 percent to $118.20 after the company beat fourth-quarter estimates and painted a bright near-term outlook.

(Additional reporting by Caroline Valetkevitch, Editing by Kenneth Barry)