Investors bet that a sharp drop in oil prices will help shore up spending.

The Dow Jones Industrial Average advanced 68.72 points, or 0.55 per cent, to close at 12,548.35 and the tech-dominated Nasdaq climbed 36.57 points, or 1.50 per cent, to 2481.24. The broad market S&P 500 rose 9.42 points, or 0.68 per cent to1385.35.

The stock market was closed on Monday for a public holiday.

Oil prices tumbled nearly 3 per cent in profit taking amid growing concerns about US energy demand as the world's largest economy wallows in a housing crisis, tight credit and higher energy and food prices.

Analysts said a survey showing plummeting consumer confidence and a separate report showing the housing market remains in a rut triggered fresh concerns about growth momentum.

The economy has stalled to a scant 0.6 per cent growth pace in the past two quarters. The government is due to release its revised first-quarter growth estimate tonight.

The Commerce Department said sales of new homes in the United States rose 3.3 per cent in April from the prior month, confounding market expectations of a decline.

“The market reaction to the new-home sales data has been positive, which is understandable given how depressed expectations were ahead of the report,” Briefing.com analysts wrote in a client note.

But the Conference Board's monthly consumer confidence index reading, a gauge of future consumer spending, fell to a 16-year low in May.

“Consumers' inflation expectations, fuelled by increasing (petrol) prices at the pump, are now at an all-time high and are likely to rise further in the months ahead,” said Lynn Franco, director of the Conference Board consumer research centre.

The expectations index, a component of the index, suggests “little likelihood of a turnaround in the immediate months ahead,” she said.

Shares of Apple, the maker of the iPhone and the iPod, and Internet search leader Google both jumped 3 per cent and were the Nasdaq's top two advancers.

IBM led the Dow's gainers with a rise of 2.5 per cent.

“Oil being down helps because people lately seem to be thinking of technology (spending) as discretionary,” said Peter Jankovskis, director of research at OakBrook Investments in Lisle, Illinois. “I really think what we're doing is building a very solid base for a strong rally to end the year.”

IBM, a technology services company, finished at $US127.32 on the New York Stock Exchange and was the S&P 500's second biggest boost, behind Apple.

Home builders were also among standouts following a Commerce Department report that showed a surprise 3.3 per cent increase in April new-home sales.

The Dow Jones home construction index rose 1.3 per cent. Shares of luxury home builder Toll Brothers added 1.6 per cent to $US21.40, while Centex Corp, the fourth-largest US home builder, rose 2.1 per cent to $US19.40.

Among retailers, home improvement chains finished higher, with Home Depot up 1.9 per cent at $US27.28 on the NYSE and rival Lowe's up nearly 1 per cent at $US23.51. Shares of Wal-Mart Stores, the world's largest retailer, climbed 1.2 per cent to $US56.40.

Airline stocks also gained on the lower crude oil prices, with the airline index up almost 4 per cent. Shares of Delta Air Lines surged 7.6 per cent to $US5.92 on the NYSE and those of UAL, parent of United Airlines, climbed 8.8 per cent to $US8.18 on Nasdaq.

Shares of banks and other financial services companies were also among the notable gainers, with value seen in the downtrodden sector. Shares of Citigroup, the largest US bank, gained 2.6 per cent to $US21.66 on the NYSE, while those of JPMorgan Chase & Co, the third-biggest US bank, gained 1.6 per cent to $US43.01.

US crude oil for July delivery settled down $US3.46, or 2.6 per cent, at $US128.73 a barrel on the New York Mercantile Exchange amid a stronger US dollar and demand concerns.

Energy shares were top drag on the broad S&P 500, with Exxon Mobil down nearly 1 per cent at $US89.80 and Chevron Corp down 1.2 per cent at $US99.58.

The bond market weakened. The yield on the 10-year Treasury bond rose to 3.921 per cent from 3.831 per cent on Friday, and that on the 30-year bond climbed to 4.645 per cent from 4.557 per cent. Bond prices and yields move in opposite directions.

European stock markets closed mostly lower as investors grappled with better than expected US housing data alongside the worst US consumer confidence figures in 16 years.

In London, the FTSE 100 index lost 0.47 per cent at 6058.50 points. In Paris, the CAC 40 shed 0.63 per cent to 4906.50 points but in Frankfurt, the Dax inched up 0.07 per cent to 6958.66 points.

The Euro Stoxx 50 index of leading Eurozone companies was down 0.37 per cent.

source:www.theaustralian.news.com.au