Aug. 7, 2012 at 4:07 PM ET
NEW YORK -- Stocks closed higher for a third straight day Tuesday, pushing the S&P 500 above 1,400 for the first time since early May, on cautious optimism the European Central Bank will act soon to contain the bloc's debt crisis.
According to preliminary calculations, the Dow Jones Industrial Average gained 49.35 points, or 0.38 percent, to 13,166.86. The Standard & Poor's 500 Index gained 6.98 points, or 0.50 percent, to 1,401.21. The Nasdaq Composite Index gained 29.95 points, or 0.87 percent, to 3,015.86.
Markets continued their rise after an upswing on Friday when investors embraced ECB President Mario Draghi's comments about restoring calm to the euro zone's troubled bond markets.
Since then, good news out of Greece and declines in Spanish and Italian yields from peaks above 7 percent have kept sentiment positive. The period of relative calm allowed the S&P to break through the psychologically important 1,400 after trying unsuccessfully the past couple of sessions.
"Lots of people are starting to discount the fundamental issues in Europe and are now embracing risk. Spanish yields have come in, so the fire is not out, but they seem to be containing it better," said David Lutz, head of ETF trading at Stifel Nicolaus Capital Markets in Baltimore.
However, volumes are light due to summer holidays, and the real tests for markets may come in September. The ECB is expected to face decisions about controlling the euro zone debt crisis and the Federal Reserve could add stimulus to aid the flagging U.S. economic recovery.
Investors were betting that a larger-than-expected fall in German industrial orders in June will underscore the importance of quick action from the ECB. Germany's economy has fared better than those at Europe's periphery, but several large German manufacturing companies said demand from Europe and emerging markets had slowed.
Volume was light, with about 2.02 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq near midday. Average daily volume in 2012, to date, is 6.69 billion.
"Europe is getting on its feet. There's a lack of negative news more so than any positive news, so people are just breathing and watching and hoping that Europe can get its act together," said Joseph Benanti, managing director of Rosenblatt Securities in New York.
"We don't really have great volume on this, so there's not a lot of conviction behind the rally," said Benanti.
Below, Ryan Lewenza of TD Waterhouse, Michael Jones of RiverFront Investment Group and CNBC's Rick Santelli and Bob Pisani discuss what's behind the market's rally.