The rise follows two days of whiplash. On Monday, the Dow dropped 129 points, its worst sell-off of the year so far, as fears about Europe's finances resurfaced. On Friday, the index gained 149 points, closing above 14,000 for the first time since 2007. The Dow is now 185 points below the record high of 14,164 it reached on Oct. 9, 2007.
Tuesday's advance was driven by new data showing that U.S. home prices rose in December at the fastest pace in more than six years. CoreLogic, a real estate data provider, reported that home prices rose 8.3 percent. In Europe, a measure of manufacturing and service businesses rose to a 10-month high in January.
Estee Lauder rose $3.66, or 6 percent, to $64.71 after reporting earnings that beat analysts' expectations. Profits surged 13 percent at the beauty products company as sales in the U.S. and emerging markets rose. Computer Sciences Corp., an information technology services company, was the biggest gainer in the S&P 500. CSC rose $3.84, or 9.2 percent, to $45.75 after the company said it was raising its earnings outlook for the year because its cost-cutting efforts were yielding better results than it had expected.
Stocks have gotten off to a strong start this year. The Dow advanced 5.8 percent in January, its best start to the year since 1994, according to data compiled to S&P Dow Jones Indices. The S&P 500 rose 5 percent last month.
McGraw-Hill Cos., parent of the Standard & Poor's ratings agency, fell $5.38, or 10.7 percent, to $44.92, after the federal government sued S&P saying that S&P knowingly misled investors about the quality of the mortgage-backed securities it was rating in the run-up to the financial crisis that caused the Great Recession. The stock dropped 14 percent on Monday after early reports about the lawsuit leaked out.
Traders sold bonds as they moved money into stocks. The yield on the 10-year Treasury note, which moves inversely to its price, climbed four basis points to 2 percent.
Yum Brands, parent of KFC, Pizza Hut and Taco Bell, fell $1.86, or 2.9 percent, to $62.08 after the company warned late Monday that 2013 profits could decline.
Archer Daniels Midland gained 94 cents, or 3.3 percent, to $29.38 after its earnings jumped in the last quarter following a restructuring.