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Stocks log 4-day rally; Nasdaq best in 13 years

Stocks logged their fourth-straight winning session on Tuesday, with the S&P 500 about 1 percent below its all-time closing high and the Nasdaq posting its best close since October 2000, lifted by a positive start to second-quarter earnings season.

"At the pace we are going at, the S&P could be challenging the May high at 1,687 by the end of the week," wrote Elliot Spar, market strategist at Stifel Nicolaus. "The bulls will surely be cheerleading for that but those that live in the real world of owning a lot of the market's merchandise that is still under water, will not be in a celebratory mood."

The Dow Jones Industrial Average rallied for its fourth-straight session, to close 75 points, or half a percent higher, at 15,300.34, led by Cisco and Caterpillar. The blue-chip index is over 100 points from its record close of 15,409.39.

The S&P 500 finished at 1,652.32 -- 17 points off its all-time highest close -- and the Nasdaq also finished higher, at 3,504.26. The Russell 2000 index hit another all-time high. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, slid near 14.

Most key S&P sectors closed higher, lifted by industrials and materials, while telecoms slipped.

"The good news is that earnings expectations have been ratcheted down over the past few weeks," said Todd Salamone, director of research at Schaeffer's Investment Research. "Lowered expectations are good because that's a lower hurdle to jump over…and a lot depends on the outlook."

Dow component Alcoa posted earnings and revenue that topped Wall Street expectations, adding it remains optimistic that global demand for aluminum will grow 7 percent this year. Shares of the aluminum maker initially opened higher, but quickly reversed their gains. Alcoa unofficially marks the start to each earnings season.

As of Friday, 122 S&P 500 companies had made earnings pre-announcements, and the ratio of negative-to-positive ones was 6.5-to-one, according to Reuters. That is the biggest percent of negative readings since 2001.

Some major banks turned lower after U.S. regulators proposed a plan that would force the country's largest financials to hold twice as much equity capital than required by the global Basel III bank capital standards.The eight largest banks would be subject to a leverage ratio of 6 percent.

JPMorgan and Wells Fargo are scheduled to report earnings later this week.

(Read More: Firms Set to Beat Lowered Bar for Earnings Season)

On the economic front, small business optimism slipped in June from its one-year high amid uncertainty over the economic recovery, according to the National Federation of Independent Business.

The government auctioned $32 billion in 3-year notes at a high yield of 0.719. The bid-to-cover ratio, an indicator of demand, was 3.35, versus the recent average of 3.50.

Meanwhile, the IMF shaved its 2013 global growth forecast to 3.1 percent, citing slowdown in emerging economies and ongoing worries in Europe. It also lowered its outlook for 2014 to 3.8 percent, down from a 4 percent expansion.

In Asia, investors largely ignored unexpectedly high consumer inflation numbers from China, despite fears that strong price rises will rule out the prospect of monetary easing by the Chinese central bank.

"CPI [consumer price inflation] data is not a market mover. Short-term focus is still on shadow banking. Investors are wondering if China's banking system can sustain a decline in GDP [gross domestic product] growth," said Stephen Sheung, head of investment strategy at SHK Private.

Meanwhile, Japan's benchmark index closed just shy of a new six-week high, as the dollar-yen trade breached the 101-yen handle.