Consumer spending, a key driver of economic growth, has been shaky in recent months as Americans struggle with falling home prices, rising food and energy costs and a volatile stock market.
A spike in oil prices back above $98 a barrel could bring more problems for consumers, but it also gave energy stocks a boost. Light, sweet crude oil jumped $3 to $97.50 per barrel on the New York Mercantile Exchange due to worries about a possible decline in production; shares of Chevron Corp., ExxonMobil Corp. and ConocoPhillips all rose.
In morning trading, the Dow Jones industrial average rose 120.89, or 0.98 percent, to 12,469.10 following the three-day Presidents Day weekend.
Broader stock indicators also advanced. The Standard & Poor's 500 index rose 13.60, or 1.01 percent, to 13,363.59, while the Nasdaq composite index rose 19.60, or 0.84 percent, to 2,341.40.
Government bonds fell as stocks gained. The yield on the 10-year Treasury note, which moves opposite its price, jumped to 3.87 percent from 3.77 percent late Friday.
The dollar slipped against most major currencies, while gold prices rose.
In addition to consumer spending, Wall Street remains concerned about the credit problems facing financial institutions.
British bank Barclays Group PLC revealed credit-related losses totaling $3.13 billion, up from a smaller write-down in November, while Credit Suisse, Switzerland's second-largest bank, said it has suspended "a handful" of traders in connection with the overvaluation of asset-backed securities by $2.85 billion.
Also, The Wall Street Journal reported that Lehman Brothers Holdings Inc. could see big losses due to its significant investments in commercial real estate loans.
There have been some signs that troubled financial institutions are finding ways to regain their footing, however.
Bond insurer Ambac Financial Group Inc. is discussing a plan to raise at least $2 billion in capital to maintain its superior credit rating, the Journal reported, citing people familiar with the matter. The move would mirror a $3 billion cash-raising effort by rival bond insurer MBIA Inc., which said Tuesday that its former chairman and chief executive has returned to the lead the company.
In economic news, the National Association of Home Builders later Tuesday will release its February housing index.
In corporate news, Microsoft Corp. chairman Bill Gates said the software company is not privately haggling with Yahoo over its rejected $31-per-share buyout offer. Microsoft Corp. made an unsolicited offer to buy the struggling Internet company just over two weeks ago.
Overseas, Japan's Nikkei stock average closed up 0.90 percent. In afternoon trading, Britain's FTSE 100 rose 1.12 percent, Germany's DAX index rose 1.07 percent, and France's CAC-40 rose 1.04 percent.
