NEW YORK (CNN/Money) - U.S. stock markets closed higher Tuesday, as gains in chips lifted the Nasdaq to its highest close in 16 months and the Dow managed another 14-month high after surging in the last few minutes of trading.

The Nasdaq composite (up 21.62 to 1761.11, Charts) closed about 1.2 percent higher, while the Dow Jones industrial average (up 16.45 to 9428.90, Charts) rallied in the last minutes of trading to end up 0.2 percent. The Standard & Poor's 500 index (up 2.61 to 1002.35, Charts) also managed to gain 0.3 percent. Monday, the Dow closed above 9,400 for the first time in nearly 14 months.

"I'm just amazed the market has been as strong as it has in the past few days," said Douglas Altabef, managing director at Matrix Asset Advisors.

A better-than-expected report on the housing sector aided the broad market, while a report on consumer sentiment pressured stocks Tuesday. Meanwhile, investors' disappointment with Home Depot's earnings went up against a positive run in the chip sector.

After the closing bell, Hewlett-Packard (HPQ: down $0.02 to $22.11, Research, Estimates) posted a fiscal third-quarter profit of 23 cents a share, up from 14 cents in the year-earlier period but missing analysts' average estimate by 3 cents. Shares of HP sank nearly 10 percent to $19.95 in after-hours trading.

With a lack of any major economic reports due Wednesday, investors could choose to focus on HP's worse-than-expected results. Retailers may, once again, enter the spotlight as Talbots (TLB: Research, Estimates), Petco (PETC: Research, Estimates), Dillard's (DDS: Research, Estimates), Hot Topic (HOTT: Research, Estimates), Big Lots (BLI: Research, Estimates) and Men's Wearhouse (MW: Research, Estimates) were all among companies set to post quarterly earnings Wednesday.

Among the news lending support to the broader market Tuesday, the Commerce Department said housing starts in the United States rose to their fastest pace in more than 17 years in July, an increase of 1.5 percent, when they were expected to fall. In June, there was a revised 5.7 percent advance.

But a drop in building permits muted the enthusiasm over the housing starts numbers. In a sign that the housing market may be starting to cool off, the government said building permits fell 2.4 percent in July. The decline was slightly greater than what Wall Street had expected.

Meanwhile, the University of Michigan's preliminary reading of its consumer sentiment index for August fell to 90.2 from July's revised 90.9. The news initially pulled the major indexes lower, as expectations had been for a rise in the sentiment reading.

Stocks jumped sharply in the second quarter as investors anticipated an economic recovery in the second half of the year, but fizzled out entering the historically slow summer months. Traders said that while Monday's rally and Tuesday's resistance to profit taking were magnified by light volume, both were good signs that investors are hanging on signals in recent data of an economic upswing.

"I think as the year goes on there is going to be more conviction about an economic recovery," Altabef said. "I think the market's sort of sideways with an upside bias at least for the next couple of months. I think we'll have a nice fourth quarter."

The day's corporate news was largely earnings-related. Home Depot (HD: down $1.74 to $32.16, Research, Estimates) was the biggest loser on the Dow, slipping 5.1 percent, despite posting second-quarter earnings that improved from a year earlier and exceeded analysts' estimates. The company also reaffirmed its sales and earnings guidance for the rest of the fiscal year.

Shares of rival Lowe's (LOW: Research, Estimates) rose 1.4 percent. The company reported strong second-quarter earnings Monday. Prudential upgraded the stock to "buy" from "hold" Tuesday.

Also in the retail sector, office products retailer Staples (SPLS: up $2.15 to $22.53, Research, Estimates) jumped 10.6 percent after it reported quarterly earnings of 18 cents a share, up from 13 cents in the year-earlier period and beating Wall Street estimates by 2 cents a share.

Homebuilders helped buoy the broader market, as they saw gains on the back of the good housing starts report. Hovnanian (HOV: up $4.21 to $58.96, Research, Estimates) jumped 7.7 percent and Toll Brothers (TOL: up $0.78 to $28.73, Research, Estimates) added 2.8 percent.

Meanwhile, a boost in current-quarter outlook late Monday by Broadcom (BRCM: up $2.50 to $25.35, Research, Estimates) helped techs. The chipmaker forecast revenue would rise about 10 percent from the previous quarter, sending the stock 11 percent higher Tuesday.

Chips continued their rally from the previous session, with the Philadelphia Semiconductor Index advancing 2.5 percent. Chipmaker Advanced Micro Devices (AMD: up $0.32 to $9.23, Research, Estimates) rose 3.6 percent on the back of a more than 14 percent gain Monday. Shares of Micron Technology (MU: up $1.10 to $13.86, Research, Estimates) jumped 8.6 percent, while nVidia (NVDA: up $1.27 to $17.90, Research, Estimates) shares rose 7.6 percent.

Market breadth was positive, with advancing stocks outnumbering losers by about two to one on both the New York Stock Exchange and on the Nasdaq. Some 1.3 billion shares traded on the NYSE and about 1.7 billion shares changed hands on the Nasdaq.

European markets closed higher. Asian stocks also finished with gains Tuesday. (Check the latest on world markets.)

Treasury prices headed higher, with the 10-year note's yield 4.37 from 4.46 percent from late Monday. The dollar sank versus the yen and was little changed against the euro.

NYMEX light sweet crude oil futures fell 18 cents to $30.70 a barrel. COMEX gold rose $3.10 to $363 an ounce.