U.S. stocks snapped a three-day decline and the Dow Jones industrial average had its biggest rally this year as takeover speculation and stock-buyback news boosted some blue chips.
Railroad shares led a rally in the Dow transportation stock index that drove it to a record high.
Investors seemed confident leading up to Federal Reserve Chairman Ben S. Bernanke's testimony before Congress today and Thursday about Fed policy and the economic outlook.
The Dow industrials jumped 102.30 points, or 0.8%, to 12,654.85 after losing 114 points in the previous three sessions.
Aluminum giant Alcoa, one of the 30 Dow members, surged $2.10 to $35 after the Times of London said BHP Billiton, the world's biggest mining company, and Rio Tinto Group, another miner, were independently considering plans for a $40-billion takeover of Alcoa.
Alcoa and Rio Tinto declined to comment. BHP denied the report.
The Dow also got a boost from 3M, which rose $1.84 to $76.43 after announcing a $7-billion stock buyback plan.
Takeovers and buybacks have helped drive the market sharply higher since mid-2006. Takeover bids suggest that stocks are attractively priced, analysts note.
"We are in a period where corporate earnings growth rates are starting to moderate, companies are flush with cash, and if you can't grow organically it's very easy to grow through acquisitions," said David Rolfe, who helps manage $650 million at Wedgewood Partners Inc. in St. Louis.
"There's a ton of capital out there waiting just to do that."
The market rally Tuesday was broad-based: Winners topped losers by more than 2 to 1 on the New York Stock Exchange and by 3 to 2 on Nasdaq.
The Standard & Poor's 500 index gained 10.89 points, or 0.8%, to 1,444.26.
The technology-heavy Nasdaq composite was up 9.50 points, or 0.4%, to 2,459.88.
The Russell 2,000 small-stock index rose 0.8% to 812.53.
Stocks advanced even as oil prices rebounded. Near-term crude futures in New York rose $1.25 to $59.06 a barrel after the International Energy Agency increased its forecast for global oil consumption this year.
Oil had tumbled $2.08 on Monday.
In the Treasury bond market yields were little changed ahead of Bernanke's testimony. The 10-year T-note yield ended at 4.81%, up from 4.8% on Monday.
Among the day's market highlights:
