Stocks logged gains across the board 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.
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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."
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The Dow Jones Industrial Average rallied 100.75 points to close at 14,760.31, led by Bank of America and Verizon. The blue-chip index has posted triple-digit swings in 12 of the last 16 sessions. Also, the Dow has not posted a three-day win streak since late April.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, tumbled near 18.
All key S&P sectors finished 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, posting their biggest annual gain in seven years. Meanwhile, sales of new single-family homes rose 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. And durable goods orders rose 3.6 percent in May, according to the Commerce Department, topping expectations for a 3 percent gain.
"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 China sigh of relief.That allows "dip" bargain hunters to keep pecking away."
Apple hovered around the $400 mark after Oppenheimer cut its price target on the tech giant to $460 from $480. In a note, analyst Ittai Kidron cited checks that show "steady demand for the iPhone 4/4S and mixed demand for the iPhone 5."
Pandora surged after the music-streaming company said its online radio service has been incorporated into the dash of more than 100 different vehicle models and estimates that one-third of all new cars sold in the U.S. this year will have Pandora installed.
Barnes & Noble tumbled after the bookstore chain reported that its quarterly net loss more than doubled as sales of its Nook device and e-books continued to plunge and business at its bookstores declined.
Walgreen slumped to lead the S&P 500 laggards after the drugstore chain reported weaker-than-expected quarterly results, citing slow front-end sales and a challenging economy.
Carnival rose after the cruise line company announced plans to split the roles of chairman and chief executive, with Arnold Donald taking the role of CEO effective July 3. Micky Arison will continue to serve as chairman of the board of the company. Separately, the company posted earnings that topped expectations, but revenue and outlook were shy of projections.
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First Solar soared to lead the S&P 500 gainers after the solar company was upgraded to "hold" from "sell" by Maxim Group and initiated with an "overweight" rating by JPMorgan.
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.
—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
Coming Up This Week:
WEDNESDAY: Fed's Kocherlakota speaks, MBA mortgage applications, GDP, corporate profits, oil inventories, 5-yr note auction, Microsoft Build conf.; Earnings from General Mills, Monsanto, Bed Bath & Beyond
THURSDAY: Jobless claims, personal income & outlays, pending home sales, natural gas inventories, Fed's Powell speaks, Fed's Lockhart speaks, 7-yr note auction, farm prices, Fed balance sheet/money supply, Apple e-books decision day; Earnings from ConAgra, KBHome, Nike, Accenture
FRIDAY: Fed's Stein speaks, Fed's Lacker speaks, Chicago PMI, consumer sentiment, Fed's Pianalto speaks, Fed's Williams speaks, NewsCorp splits into 2 companies; Earnings from Blackberry
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