After a rocky start, stocks barreled higher Tuesday fueled by a surge in techs and a report that showed new home construction unexpectedly jumped in February.
The Dow Jones Industrial Average gained 2.5 percent to close at 7,395.70, while the S&P 500 advanced 3.2 percent to end at 778.12.
The Nasdaq rocketed 4.1 percent to finish at 1,462.11 as techs rallied following news that chip orders are on the rise and as Apple debuted its new iPhone software.
Semiconductors posted solid gains after a note from Stifel Nicolaus indicated new orders are on the rise.
Several chip makers, including Altera , Texas Instruments and Taiwan Semiconductor have recently cited a pickup in business and in some cases, raised their March outlooks, Stifel chip analyst Patrick Ho said, which has largely been driven by demand from China, specifically in the 3G wireless space, he explained.
That's prompted some speculation that the sector has hit bottom but Ho said be careful. He's still got a "neutral" rating on the sector.
"I think the group will remain volatile and there are no signs in the overall economy that things have 'bottomed out' (yet)," he said.
AMD jumped more than 11 percent, while Intel gained 4.6 percent, making it one of the top gainers on the Dow.
Cisco advanced 4.5 percent after Goldman Sachs put the stock on its "conviction buy" list, citing the potential for Cisco's new server to boost profits.
Apple shares rose 4.4 percent as the company unveiled a major iPhone upgrade, including a "push" feature, which automatically updates programs when the iPhone is turned on and cut, copy, paste across all apps. Beyond pragmatism, Apple did some trademark pure cool updates, like shake to erase, which even works with pictures.
>> Read Jim Goldman's LIVE BLOG of the Apple announcement
The recent bank rally, however, began to lose steam after analyst Meredith Whitney said on CNBC this morning that the banks' troubles are likely to get worse this yearamd a surge in borrower defaults and unemployment pressures.
"I don't think this year is going to look any better than last year," said Whitney, who was a guest host on CNBC today. "In fact it will look worse because there's so much credit coming out of the system."
Whitney also said that mark-to-market accounting doesn't really matter anymore and that the subprime asset class was about to take another dive.
Bank stocks finished higher after a wobbly session: JPMorgan and Citigroup were the top two percentage gainers on the Dow, rising 8.9 and 7.7 percent, respectively.
Bank of America rose just 1.5 percent.
Citigroup and Morgan Stanley are exploring ways to sidestep government bonus caps, according to a report in the Wall Street Journal.
Bank stocks have benefited from bank executives' comments that 2009 was off to a good start. Whitney said she thinks Citi's recent announcement that it was profitable in the first two months of the year will come back to haunt it.
AIG shares jumped 16 percent despite the backlash against recent bonuses issued by the insurer, honoring contracts that were in place before the bailout. Today's gains build on the stock's 66-percent gain yesterday.
American Express shares gained 2.1 percent. The company said Monday that credit-card delinquencies rose.
With each day that stocks move higher, investors want to know — is the bull back?
Probably not, Jeff DeGraaf, head of technical analysis research at ISI, said on "Fast Money" last night.
DeGraaf said this rally will probably continue for the next two months, making it the biggest bear market rally in 100 years, but after that, it's right back down.
“One of the keys as we climb is to look at the percentage of issues above their own 50-day moving average," DeGraaf said. "When it gets to about 80% pull the rip chord and start re-asserting the bear trend and get short again.”
In the troubled auto sector, tensions are risingbetween General Motors bondholders and the government, with bondholders reacting to statements that from the head of the auto task force that they are being "difficult."
Shares of General Motors slipped 2 percent, while Ford advanced 8.6 percent.
Housing starts shot up 22.2 percentto a seasonally adjusted 583,000 annual rate last month, the first increase in nearly a year, after a sharp drop in January that was revised slightly higher. Applications for building permits, a gauge of future home-building activity, also rose unexpectedly, climbing 3 percent to an annual pace of 547,000.
Economists pointed out that the sharp rise was a result of a huge jump in multi-family homes (apartments), while single-family homes, which usually account for most of housing starts, rose just slightly.
"This is a temporary rebound, not a recovery, though it likely means the post-Lehman crash is over," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients.
Still, homebuilders rose sharply and Home Depot was one of the top gainers on the Dow, climbing 6.7 percent, as the report gave the housing sector a boost.
Jefferies upgraded home-improvement retailers Home Depot and Lowe's to "buy" from "hold," saying the move reflected an "early cycle trade in the group."
And Target , the chic discount retailer that has lost out to rival Wal-Mart in this recession, rose 5.6 percent. Options trading on Target was also heavy.
Meanwhile, producer prices rose 0.1 percent in February, as energy prices moderated. Excluding volatile food and energy components, PPI advanced 0.2 percent.
Alcoa tumbled 8.7 percent after the Dow component said Monday it was slashing its dividend, issuing $1.1 billion in stock and convertible notes and cutting 2010 spending as it struggles through a decrease in aluminum demand.
And Nucor fell 9.2 percent after the steelmaker projected a wider loss than previously thought, with the CEO saying that the economy had "fallen off a cliff" and that there was "no visibility as to the timing of the recovery."
Trading volume on the New York Stock Exchange was average, with about 1.5 billion shares changing hands, about the same as last year's daily average. Advancers outpaced decliners, 4 to 1.
Still to Come:
TUESDAY: Earnings from Adobe after the bell
WEDNESDAY: Weekly mortgage applications; current account; weekly crude prices; Chicago Midwest manufacturing index; Earnings from General Mills, Oracle and Nike; Fed decision on interest rates; House hearing on AIG
THURSDAY: Weekly jobless claims; leading indicators; Philly Fed survey; Earnings from FedEx; GE to provide details on GE Capital
FRIDAY: Quadruple witching; Fed's Bernanke speaks about financial crisis at bankers' convention in Phoenix