Buyers swept back onto Wall Street on Tuesday as oil prices tumbled from record highs and consumer confidence surged to a three-year high.
The Dow Jones industrial average jumped 114.85 points, or 1.1%, to 10,405.63, rebounding from Monday's six-week low.
Near-term crude oil futures in New York slumped $2.34 to $58.20 a barrel, after closing above $60 for the first time Monday.
Some hedge funds and other speculators were liquidating oil futures to take profits after crude's latest run-up, analysts said.
Still, few experts were predicting a sustained decline, amid continuing concerns about global supplies.
"We expect crude-oil prices to hover around $60 a barrel with some short-term profit taking ahead of the holiday," Agbeli Ameko, a managing director with Enercast Inc., an energy-trading advisor in Houston, said in a note to clients Tuesday.
Financial markets will be closed Monday in observance of the Fourth of July holiday.
Even if oil fails to pull back much, worries about the effect of high prices on the economy may be overstated, said Barry Ritholtz, market strategist at brokerage Maxim Group in New York.
"There is a tipping point somewhere, but I don't think it's $60 a barrel," Ritholtz said. "It's closer to $75, $80 that will slow us down. The same factors that are underlying growth in the economy are also underlying demand for oil."
Indeed, the latest reading on consumer confidence suggested that Americans had relatively little concern about energy prices, at least at early- to mid-June levels, when the last confidence survey was taken: The Conference Board said its confidence index rose to a three-year high of 105.8 this month from 103.1 in May.
Stocks, which were hammered last week as oil advanced, saw broad-based buying Tuesday. Winners topped losers by 8 to 3 on the New York Stock Exchange and on Nasdaq.
The Nasdaq composite gained 24.69 points, or 1.2%, to 2,069.89, and the Standard & Poor's 500 rallied 10.88 points, or 0.9%, to 1,201.57.
Most major indexes scored their biggest one-day gain since May 18.
Smaller stocks were particularly strong: The Russell 2,000 index of smaller issues jumped 13.17 points, or 2.1%, to 641.48.
The market's upswing provided optimism as the Federal Reserve today begins a two-day policy meeting. The central bank on Thursday is expected to raise its key short-term interest rate for the ninth time in a year, from 3% to 3.25%.
As usual, investors will be waiting to see how the Fed words its post-meeting statement, and whether it gives any hint that it might be nearing the end of its credit-tightening campaign.
Long-term Treasury bond yields rose Tuesday as some investors moved out of bonds and into stocks. The yield on the 10-year Treasury note ended at 3.97%, up from 3.90% on Monday. The yield hit a 14-month low of 3.89% on June 1 and has fallen from 4.22% at the end of 2004.
With two trading days left in the first half, the Dow index is down 3.5% year to date, not counting dividends. The S&P 500 is down 0.9% and the Nasdaq composite is off 4.9%. The Russell 2,000 is down 1.6%.
Among Tuesday's market highlights:
* Retail shares rallied on the consumer confidence data. Federated Department Stores gained $2.42 to $74.45, Nordstrom rose $1.93 to $67.60, Home Depot added 84 cents to $39.31 and Wal-Mart was up 91 cents to $48.43.
* Transportation shares jumped as oil prices retreated. United Parcel Service gained $1.42 to $69.82, Delta Air Lines surged 45 cents to $3.97, trucking firm Yellow Roadway rallied $1.28 to $49.54 and rail giant Norfolk Southern rose $1.25 to $31.26.
* Steelmakers were higher after the government said steel imports slid 15% last month, signaling reduced competition for domestic producers. U.S. Steel added 90 cents to $35, Nucor rose $1.50 to $47.67 and Steel Dynamics was up $1.01 to $26.42.
* The Dow was led higher by United Technologies, up $1.50 to $53.02, and General Motors, up 89 cents to $34.36.
Other industrial issues also were strong, including Ingersoll-Rand, up $2.19 to $72.99; Deere, up $1.25 to $66.30; and Cummins, up $2.32 to $75.53.
* Most energy stocks fell with crude prices. Amerada Hess lost $4.16 to $106.26 and Chevron slipped 25 cents to $57.
* Google rose as high as $309.25 but closed at $302, down $2.10. The Internet search company's shares closed above $300 for the first time Monday.
* Carpinteria, Calif.-based CKE Restaurants, parent of the Carl's Jr. and Hardee's chains, slid $1.10 to $14.12. On Monday the firm reported earnings that were below analysts' estimates.
* The dollar rallied to its highest level since October against the yen as the consumer confidence report boosted optimism about the U.S. economy. The dollar ended at 109.85 yen in New York, up from 109.26 on Monday. The euro fell to $1.207 from $1.216.
Gold declined as the dollar rose. Near-term gold futures in New York lost $3.90 to $436.40 an ounce. Gold is down $1.10 an ounce year to date.