Stocks ended near their best levels Tuesday, with the Dow posting a new high and S&P 500 finishing less than 2 points from its closing peak.
Stocks moved higher on a handful of encouraging economic reports that pointed to an improving economy and as investors seemed to temporarily overlook worries in the euro zone.
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The Dow Jones Industrial Average soared 111.90 points, or 0.77 percent, to close at 14,559.65, led by Intel and Hewlett-Packard. The blue-chip index posted a new record close.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, ended below 13.
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All key S&P sectors were ended in positive territory, led by health care and energy.
"From a fundamental perspective, while the dominant domestic theme has heretofore been better-than-expected economic data boosting investor confidence in the earnings outlook, despite sluggish first-quarter guidance and fears of fiscal drag, many are now beginning to lock in gains realizing that the flipside of stronger growth is that QE tapering is potentially drawing closer, Chairman Bernanke's assurances to the contrary notwithstanding," wrote Alec Young, global equity strategist at S&P Capital IQ. "After all, markets are forward looking."
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In Europe, Fitch put Cyprus on rating watch negative, saying the shock from the country's banking system could damage the domestic economy and thus public finances. But Wall Street was unfazed by the announcement.
Banks in Cyprus will be closed until Thursday, and will then be subject to capital controls to prevent a run on deposits. Cyprus's Finance Minister Michael Sarris told BBC radio big depositors in Cypriot banks could lose about 40 percent of their deposits but an exact figure had yet to be decided. Banks are due to reopen on Thursday and will be subject to capital controls to prevent a run on deposits.
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Still, investors seemed less fazed over Cyprus. European shares ended higher, snapping their thee-day losing streak.
"We're more optimistic about Cyprus than we were a couple days ago, but it's going to continue to be unpredictable and if nothing else, even if it does get resolved, it's a reminder of just how fragile the situation in Europe is," said Matthew Kaufler, portfolio manager of the Federated Clover Fund of the day's economic data.
(Read More: Euro Not Out of Woods Yet)
Also among techs, Piper Jaffray's Gene Munster called consensus estimates for Apple's March and June quarters too high, but said new product launches mean investors will look to the second half of the year for opportunity. In addition, Munster said he believes Apple will increase its dividend to around $14 a share from the current $10.60. Still, shares finished in the red. (Read More: Apple Heading to $600: Analyst)
Children's Place slumped after the kids' apparel retailer issued a downbeat earnings outlook for the current quarter and fiscal year.
On the economic front, the S&P/Case Shiller home price 20-city index soared 8.1 percent compared to a year ago, kicking off the year with the biggest year-over-year increase since 2006. But new home sales declined 4.6 percent in February to a seasonally adjusted annual rate of 411,000 units, according to the Commerce Department, missing estimates. Homebuilders were in the red, led by Beazer and DR Horton.
Consumer confidence index dropped in March, according to the Conference Board as Americans turned more pessimistic about economic prospects in the short term.
But durable goods orders climbed in February as demand for transportation equipment rebounded, according to the Commerce Department, topping expectations.
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"It's been a mixed bag and a continuation of what we've seen all along," said Kaufler. "The key takeaway is that the economy is on the mend, but in a very slow way…it's a slow grind."
Treasurys eased their gains after the government auctioned $35 billion in 2-year notes at a high yield of 0.255 percent. The bid-to-cover ratio, an indicator of demand, was 3.27.
—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
Coming Up This Week:
WEDNESDAY: Mortgage applications, pending home sales, oil inventories, Fed's Evans speaks, Fed's Rosengren speaks, Fed's Pianalto speaks, Fed's Kocherlakota speaks, 5-yr note auction, farm prices; Earnings from Red Hat, Paychex
THURSDAY: GDP, jobless claims, corporate profits, Chicago PMI, natural gas inventories, 7-yr note auction, Fed balance sheet/money supply, Ebay analysts mtg, weekly rail numbers; Earnings from Accenture, Blackberry, Mosaic, Gamestop
FRIDAY: Good Friday—U.S. banks open/equity markets closed, personal income & outlays, consumer sentiment
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