Stocks ended higher on Tuesday, rebounding from their worst decline since November, after Federal Reserve Chairman Ben Bernanke defended the Fed's bond-buying stimulus and sales of new homes hit a 4 1-2-year high.
The Dow Jones industrial average shot up 115.96 points, or 0.84 percent, to end at 13,900.13. The Standard & Poor's 500 Index gained 9.10 points, or 0.61 percent, to finish at 1,496.94. The Nasdaq Composite Index advanced 13.40 points, or 0.43 percent, to close at 3,129.65.
Strong earnings reports from Home Depot and Macy's are also helping to lift stock indexes in early trading on Wall Street.
Home Depot, the biggest home improvement store chain in the country, jumped 4 percent after reporting that its income jumped 32 percent in the latest quarter thanks to strong U.S. sales and the cleanup that followed Superstorm Sandy. Macy's results also beat analysts' forecasts.
Major indexes fell more than 1 percent on Monday, with the S&P 500 having its biggest daily drop since November as investors fretted that if Italy does not undertake reforms, the euro zone could once again be destabilized.
Groups in Italy opposed to economic reforms posted a strong showing in the recent election, resulting in a political deadlock with a comedian's protest party leading the poll and no group securing a clear majority in parliament.
"We've gone to an environment of political stability to instability, and until we get some type of clarity over who is in charge, which could take days, the market will have renewed concerns," said Art Hogan, managing director of Lazard Capital Markets in New York.
Still, market participants speculated a coalition government would eventually emerge in Italy and ease worries about a new euro zone debt crisis.
The rise in U.S. futures suggested the recent trend of investors buying on dips would continue. Last week, concerns the Fed might roll back its stimulus efforts earlier than expected prompted a sharp two-day decline, though equities recovered most of the lost ground by the end of the week.
"Investors are taking advantage of the drop, and once some kind of coalition government is formed most of our concerns will be put to rest," Hogan said.
For the benchmark S&P 500 index, 1,500 will be watched as a key level after the index closed below it on Monday for the first time since February 4, with selling accelerating after falling below it. An inability to break back above it could portend further losses.
Financial shares may be among the most volatile, as the group is closely tied to the pace of global economic growth. Morgan Stanley was one of the top percentage losers on the S&P on Monday, dropping more than 6 percent on concerns about the company's exposure to European debt. It rose 0.8 percent to $22.20 in premarket trading on Tuesday.
With 83 percent of the S&P 500 having reported so far, 69 percent beat profit expectations, compared with a 62 percent average since 1994 and 65 percent over the past four quarters, according to Thomson Reuters data. Fourth-quarter S&P earnings are seen having risen 6 percent, above a 1.9 percent forecast at the start of the earnings season.