Stocks remained higher in the final hour of trading Tuesday amid light volume, ahead of Fed chairman Ben Bernanke's speech on the economic outlook.
The Dow Jones Industrial Average was up more than 40 points, led by Alcoa and Intel after finishing lower for the fourth straight session Monday.
Cisco was among the blue-chip laggards.
The S&P 500 and the tech-heavy Nasdaq also climbed. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 18.
Among key S&P sectors energy and materials gained, while techs slipped.
“We were oversold for four weeks so we’re seeing a little rebound here—we expect a bounce,” said Alan Valdes, director of floor operations for DME Securities, but added that volume has been quite light and that investors are “still scared” to get in.
Valdes noted that June is historically a down month for stocks and added that trading will likely be volatile throughout the summer with the S&P trading near 1,280 on the downside and 1,350 on the upside.
“This market was really fueled by the Fed,” he said, adding that stocks could tumble as much as 6 percent if there is no QE3.
Fed Chairman Bernanke is scheduled to speak at 3:45 p.m. ETto a bankers conference in Atlanta on the state of the economy. Following last week's weak jobs report and with the QE2 program winding to an end at the end of the month, investors will pore over Bernanke's words for any hints about a possible QE3. (CNBC.com will stream the event live.)
Earlier, Richard Fisher said the Fed is not holding back the economy and that there is no need to continue the easy monetary policy.
"The question is who steps on the pedal to accelerate the car—It’s out of our hands right now," the Dallas Fed President told CNBC.
Meanwhile, Atlanta Fed President Dennis Lockhart said the economic rebound remains disappointingly erraticand hinted that the central bank may be considering further stimulus.
Banks gained after selling off heavily in the recent weeks with JPMorgan and Barclays advancing almost 2 percent each.
Regions Financial said it will repurchase $1 billion in credit card accounts from Bank of America's
Morgan Stanley said it may cut the number of brokers in its wealth management division. The announcement follows a layoff of about 300 brokers in the previous quarter.
Oil gained amid expectations that OPEC will increase its production quota for the first time in 2-1/2 years this week, although the amount is still under discussion. London Brent crude gained $2.30 to settle at $116.78 a barrel, while U.S. light, sweet crude rose 8 sents to settle at $99.09.
Meanwhile, oil drillers including Halliburton and Baker Hughes advanced following a forecast from Dahlman Rose & Co stating that global spending on oil and gas exploration and production may grow 14 percent in 2011.
The dollar declined to a one-month low against a basket of currencies after a Chinese official said the greenback would continue to weakenversus other major currencies. But gold failed to decline on the heels of a weaker dollar, slipping $3.20 to settle at $1,544 an ounce. (Read More: Dollar Rise Will Spell Trouble for Gold—Analysts)
Material stocks showed strength with Freeport McMoran , Rio Tinto and BHP Billiton gaining.
General Motors said May vehicle sales in China slipped for the second consecutive month amid a slowdown in the world's largest market. Meanwhile, Ford CEO Allan Mulally is expected to tell investors the automaker plans to increase sales by 50 percent over the next four years.