Stocks ended higher as the mid-term elections were underway and the Federal Reserve began a two-day meeting that is expected to result in a decision to pump more money into the economy.
The Dow Jones Industrial Average rose 64.10 points, or 0.6 percent, to close at 11,188.72 after eking out a slim gainin a rocky trading session Monday.
Home Depot , American Express, and Microsoft led the blue-chips higher, while JPMorgan and Intelslipped.
The S&P 500 Index rose 9.19 points, or 0.8 percent, to close at 1,193.57. The Nasdaq rose 28.68 points, or 1.1 percent, to close at 2,533.52, its highest level since June 2008.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 22, after six days of gains.
All key S&P sectors rose, led by energy, utilities and consumer discretionary.
Republicans were expected to win the House of Representatives in the Congressional mid-term election, and to narrow the gap in Senate.
Health insurers, a sector hurt by the Democrats' push to reform healthcare, were among the day's gainers.
Humana jumped more than 3 percent after at least four brokerages raised their price targets on the health care firm. The sharp gain was in contrast to the stock's more muted gains Monday, when it rose less than 1 percent after posting a profit that blew past the Street's targets.
Rival Aetna is scheduled to report earnings Wednesday morning. Other health insurers including WellPoint and Cigna also gained.
Pfizer sharesreported strong profits, thanks to cost-cutting, but weak sales, sending the pharmaceutical giant's shares slightly lower. In Pfizer's case, sales were hurt by generic competition for Lipitor, its cholesterol drug, and weak sales in emerging markets.
But Medco Health Solutions jumped more than 8 percent after the pharmacy benefits manager said profits topped estimates, helped by dispensing more high-margin generic drugs and the firm projected earnings would rise as much as 17 percent next year.
Investors were also awaiting the results of the Federal Reserve's two-day policy-setting meeting,that started Tuesday and ends with a statement at 2:15 p.m. ET Wednesday.
Many economists expect the Fed will announce plans to buy Treasury securities to stimulate the economy, although views differ on the scale and timing of the purchases.
The strategy of stimulating the economy by purchasing long-term securities, as the Fed is expected to do, is an "experiment," that's more art than science, said Quincy Krosby, market strategist at Prudential Financial.
"An experiment means uncertainty, and markets loathe uncertainty," Krosby added.
As a result, investors and traders will be paying close attention to leading economic indicators in the weeks and months ahead for signs the economy is on a sustainable path to growth, she said.
"The ultimate test for the markets will be: Is the growth picking up? Are we seeing organic growth in the economy?" Krosby said. She suggested the markets will take two or three months to decide if the Fed's strategy worked or not, and "then market will authorize the verdict."
But Jim Paulsen, strategist at Wells Capital Management, said the most important news for the market this week wasn't the elections or the Fed's policy decision, but the nonfarm payrolls report due out on Friday.
According to Paulsen, the economic data of late shows the economy is getting stronger. A healthier economy combined with more Republican lawmakers in the house, and monetary stimulus, should combine to drive stocks higher, Paulsen said.
"Unless the payrolls number really disappoint, we're going to head to new highs in the next few weeks for this recovery cycle," he said.
One reason stocks rose Tuesday was the dollar fell against a basket of currencies after both Australia and India raised their benchmark interest rates.
The dollar was also under pressure as investors expect a Federal Reserve decision to pump more money into the economy will weaken the value of the U.S. currency. Stocks have been moving inversely to the dollar, as a weaker dollar boosts commodity and materials stocks.
In other earnings news, MasterCard sharesclimbed after the credit-card issuer reported a 15 percent gain in third-quarter profits thanks to strong international spending.
But Archer Daniel Midland sank after the agricultural processing company reported inventory charges hurt third-quarter earnings.
Shares of cereal maker Kellogg fell slightly after reporting lower earnings and sales, due in part to product recall and weak sales.
Clorox tumbled more than 4 percent after the manufacturer of various food and chemical products reported flat earnings and gave a tepid full-year forecast, citing a weak economy.
Newmont Mining beat Street estimates with a 38 percent increase in profit, driven by record high gold and strong copper prices. However, shares slipped after the firm again lowered the 2010 production target at its flagship Australian mine.
Gold rose near $1,350 an ounceas strong demand from leading consumers such as India and Turkey ahead of major gold-buying events helped lift prices. Oil jumped above $84 a barrel after OPEC member Libya said oil producers would find prices of $100 a barrel more comfortable because of higher food prices and a weaker dollar.
Meanwhile, BP rose after the oil company lifted its estimate of the likely costof its Gulf of Mexico oil spill by $7.7 billion to $39.9 billion. This pushed its profits down sharply in spite of higher oil and gas prices.
The energy company said delays in capping its blown-out well prompted the increased charge for ending the leak, cleaning up the damage and compensating those affected.
Some pros appeared to be bullish on the energy space.
"The dividends are good on stocks such as ExxonMobil , Chevron and ConocoPhillips ," David Dietze, president and chief investment strategist at Point View Financial Services told CNBC. "We think [the sector] has some hedging against inflation going forward." (Watch the video for more, on left.)
Meanwhile, Baker Hughes gained after at least seven brokerages raised their price targets and ratings on the oilfield services firm. And Diamond Offshore also advanced after Goldman Sachs raised its price target to $62 from $56 on the driller.
Plus, UBS raised its price target on Anadarko Petroleum to $72 from $66.
In tech news, Art Technology Group's shares skyrocketed more than 40 percent after Oracle said it will buy the company for $1 billion to boost its e-commerce software applications. The offering price, at $6 a share, was a 46 percent premium to Art Technology Group's closing price on Monday.
Oracle, meanwhile, was in U.S. District Court in California Tuesday, charging SAP with stealing software. Oracle is seeking $2 billion in damages.
Videogame publisher Electronic Arts shares rose ahead of the firm's earnings due after-the-bell tonight.
Toyota said that its sales in China fell 6 percentin October to 61,600 vehicles, marking the first year-on-year decline in 18 months.
JPMorgan fell a day after news the bank was being investigated by the Securities and Exchange Commissionfor a collateralized debt obligation transaction with Magnetar Capital, a hedge fund. JPMorgan said to CNBC, "We, like other firms, have received an inquiry from the SEC related to our collateralized debt obligation business. We are cooperating fully with the inquiry."
Volume on the consolidated tape of the New York Stock Exchange was relatively light, with 3.7 billion shares traded. On the NYSE floor, 914 million shares changed hands, with advancers outpacing decliners nearly 3 to 1.
On Tap Next Week:
TUESDAY: After-the-bell earnings from Electronic Arts.
WEDNESDAY: FOMC announcement; MBA mortgage applications, Challenger job-cut report, ADP employment report, Treasury refunding announcement, auto sales, factory orders, ISM non-manufacturing index, oil inventories; before-the-bell earnings from Time Warner, Aetna, CVS; after-the-bell earnings from Chesapeake Energy, News Corp, Prudential Financial and Transocean.
THURSDAY: Chain-store sales, BoE announcement, jobless claims, productivity and costs, ECB announcement; after-the-bell earnings from Kraft and Starbucks.
FRIDAY: Pending home sales index, non-farm payrolls report, consumer credit; Kansas City Fed President Hoenig speaks; before-the-bell earnings from Toyota; after-the-bell earnings from Berkshire Hathaway.
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