Stocks rose Tuesday after industrial equipment maker Illinois Tool Works Inc. said it was seeing stronger demand.
The Dow Jones industrial average rose 95 points in morning trading. Major stock indexes all rose about 1 percent.
At the same time, a gain in the euro and an advance in European stock markets signaled that traders around the world are less worried that debt problems will disrupt a global recovery.
The climb in U.S. stocks was broad, but industrials made some of the biggest advances. Illinois Tool rose about 0.7 percent after it raised the lower end of its fiscal second-quarter earnings target. Other industrial names climbed. Boeing Co. rose 2.8 percent.
"We're still seeing factories and manufacturing help provide a little stimulus for the economy here," said Michael Church, president at Addison Capital Group in Philadelphia.
Traders shrugged off a weaker-than-expected earnings report from electronics chain Best Buy Co. Its shares fell 7 percent.
Stocks drew strength from gains in European markets, which reversed early losses and pushed higher. The euro rose to $1.2272 in an indication that traders are more confident that European governments can slash debt without spoiling an economic rebound.
The drop in the dollar against the euro boosted commodities prices because they become more affordable for overseas buyers when the dollar falls. That, in turn, increases demand.
The initial drop in overseas stocks came a day after Moody's cut its rating on Greece's debt to "junk" status.
Traders in the U.S. initially had little reaction to the report Monday afternoon, but a broad gain in stocks faded by the close. Major stock indexes ended mixed after the downgrade and after the Standard & Poor's 500 index failed to push above its average close of the past 200 days. That's a key technical level watched by traders. Trading below that level is seen as a sign of weakness in the market.
The advance Tuesday extends the choppy trading that has become a fixture in the market since major stock indexes climbed to their 2010 peaks in late April. Stocks have been logging big swings since then, a sign that traders are uncertain about whether the economy will continue to recover.
In midmorning trading, the Dow rose 95.15, or 0.9 percent, to 10,286.04. The broader Standard & Poor's 500 index rose 10.92, or 1 percent, to 1,100.55, and the Nasdaq composite index rose 28.51, or 1.3 percent, to 2,272.47.
Bond prices edged higher, pushing down interest rates. The yield on the benchmark 10-year Treasury note fell to 3.25 percent from 3.26 percent late Monday.
Crude oil rose 80 cents to $75.92 per barrel on the New York Mercantile Exchange.
Illinois Tool rose 34 cents, or 0.7 percent, to $45.99 after the company increased its forecast. Boeing climbed $1.82, or 2.8 percent, to $66.64.
Best Buy's fiscal first-quarter net income and revenue fell short of analysts' expectations but the company reiterated its fiscal 2011 forecast. The report brought concerns that consumers will cut spending and hurt a U.S. recovery. Best Buy fell $2.74, or 6.7 percent, to $38.31.
Shares of BP PLC fell 44 cents, or 1.4 percent, to $30.23 after the credit ratings agency Fitch cut its rating on the oil company's debt. Fitch cited concerns about rising costs tied to the Gulf of Mexico oil spill that began April 20 when a rig operated by BP exploded.
BP shares fell 10 percent Monday after concerns grew about stepped-up political pressure in the U.S. to set aside money for costs related to the spill.
Home builder stocks were mixed after the National Association of Home Builders reported that its housing market index dropped in June to the lowest level since March. Builders grew more pessimistic because the government's homebuyer tax credit expired in April. There are concerns that will hurt demand.
Beazer Homes USA Inc. rose 9 cents, or 2.2 percent, to $4.21, while Toll Brothers Inc. fell 21 cents, or 1.1 percent, to $18.43.
The Russell 2000 index of smaller companies rose 4.42, or 0.7 percent, to 656.69.
About three stocks rose for every one that fell on the New York Stock Exchange, where volume came to 195 million shares, compared with 204 million traded at the same point Monday.
In afternoon trading, Britain's FTSE 100 climbed 0.4 percent, Germany's DAX index rose 0.6 percent, and France's CAC-40 rose 0.7 percent. Earlier, Japan's Nikkei stock average finished up 0.1 percent.