Stocks logged gains across the board on Tuesday, erasing most of their losses from the previous day's selloff, as a batch of better-than-expected economic reports trumped worries over a credit crunch in China.
Traders also took comfort from some Federal Reserve policymakers who downplayed the potential impact of scaling back the asset purchase program.
"Overall, people are still trying to digest the bigger picture regarding the Fed and when that tapering's going to occur," said Joe Bell, senior equity analyst at Schaeffer's Investment Research. "Longer-term, we think the market will resolve to the upside, but we're in a transition period where there's a lot of uncertainty."
(Read More: Dr. Doom? Marc Faber Sees Stock Buying Opportunity)
The Dow Jones Industrial Average rallied to close 100 points higher at 14,760.31, recovering all its losses from Monday's session. Bank of America and Verizon led the gainers. The blue-chip index has posted triple-digit swings in 12 of the lat 16 sessions. Also, the Dow has not posted a three-day win streak since late April.
The S&P 500 and the Nasdaq also jumped. Still, the S&P remains on track for its first losing month since October. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, tumbled near 18.
All key S&P sectors were in positive territory, led by financials and telecoms.
"Whenever cyclical and higher-growth stocks start leading, we think that's a good sign for the overall market," said Bell. "Even in a rising rate environment, the cyclicals will fare a bit better."
On the economic front, home prices jumped 1.7 percent in April, according to the S&P/Case Shiller composite index of 20 metropolitan areas, edging past estimates for a gain of 1/2 percent, posting their biggest annual gain in seven years. Meanwhile, sales of new single-family homes gained 2.1 percent to a seasonally adjusted annual rate of 476,000 units, rising to their highest level in nearly five years in May, according to the Commerce Department.
Consumer confidence surged to its highest level since January 2008, according to the Conference Board, with the index rising to 81.4 from a downwardly revised 74.3 the month before.. And durable goods orders rose 3.6 percent in May, according to the Commerce Department, topping expectations for a 3 percent gain and after a previously reported 3.5 percent increase the prior month.
"All told, today's report is quite good with headline and core orders coming in stronger than expected," wrote Dan Greenhaus, chief global strategist at BTIG. "Bottom line: good news for the economy should be good news for investors and this report is good."
On Monday, Dallas Fed President Richard Fisher said he advocated a reduction to the central bank's stimulus program, but stressed it should be done gradually. Minneapolis Fed President Narayana Kocherlakota said markets were wrong to view the central bank as having become more hawkish on the need to tighten monetary policy and emphasized that policy will remain accommodative "for a considerable time" after the end of quantitative easing.
The Chinese central bank said it expected seasonal factors that caused a recent spike in interbank market rates to gradually fade. Local lenders in China have faced a severe liquidity strain in recent weeks, with interbank lending rates hitting double digits last week, raising concern that efforts to rein in credit growth and steer the economy away from a dependence on credit-driven investment could go wrong.
"Some pundits attribute rally to better data," said Art Cashin, director of floor operations at UBS Financial Services. "While the numbers were good, this bounce is 90 percent a China sigh of relief. That allows "dip" bargain hunters to keep pecking away."
(Read More:Earnings Season Already Looks Like a Train Wreck)
The government auctioned $35 billion in two-year notes at a high yield of 0.430 percent, the highest since May 2011. The bid-to-cover ratio, an indicator of demand, was 3.05.