NEW YORK (CNN/Money) - Stocks rallied Tuesday as tame inflation readings and strong earnings encouraged investors shaken by last week's sell-off.

If Wednesday's economic reads are soft on inflation, good news from Intel and Yahoo! could set the stage for another winning streak on Wall Street.

After fluctuating all morning, gauges stabilized late in the day. The Dow Jones industrial average (up 56.16 to 10,127.41, Charts) and Standard & Poor's 500 (up 6.80 to 1,152.78, Charts) both ended the session up 0.6 percent, while the tech-heavy Nasdaq composite (up 19.44 to 1,932.36, Charts) rose 1 percent.

"The good earnings news is really taking hold," said Peter Cardillo, chief market strategist at S.W. Bach. "Some of the warnings from last week are less of a factor in the marketplace now."

Texas Instruments (up $1.25 to $24.17, Research) boosted stocks, reporting after the bell Monday that first-quarter earnings beat consensus estimates by a penny a share. The world's largest maker of chips for cell phones also issued in-line guidance for the second quarter, sending its stock up 5.5 percent at the close.

Coca-Cola (up $1.43 to $42.40, Research) also lifted blue chips after reporting an 11 percent drop in first-quarter profit, but a huge jump in international sales. Moreover, excluding one-time items, the results beat estimates. Coke rallied 3.5 percent on the news.

Tuesday's rally began as a bounce back from last week's selloff, with the Dow losing 400 points over three sessions in its worst week in two years.

"The most important thing is that the stock market had declined to levels that were arguably undervalued, and that many aggressive managers also realized there was a great deal of pessimism," said Hugh Johnson, head of equity trading at First Albany.

Whether the rally was a technical bounce or the beginning of a longer trend was up for debate.

"The ups and downs today were part of the process of consolidation," said Cardillo. "We're finally stabilizing today and it looks like the worst is over."

After the bell, semiconductor heavy-hitter Intel (up $0.42 to $22.63, Research) said it beat earnings estimates as income rose 25 percent from a year earlier. Shares rose more than 3 percent in after-hours trading on Inet.

Fellow tech giant Yahoo! (up $0.67 to $33.22, Research) saw shares rise more than 4 percent after hours. The Internet company said its quarterly profit doubled from a year ago on higher revenue from Web advertising.

Before the bell Wednesday, more earnings announcements will be released by Dow components Altria (up $0.39 to $64.12, Research) and Caterpillar (up $1.37 to $84.95, Research).

A relatively tame reading on inflation and a big drop in housing starts added fuel to Tuesday's rally.

The Department of Labor said that the Producer Price Index for March rose 0.7 percent, boosted by rising energy prices, but the index was lower than forecasts after volatile food and energy costs were excluded.

"After seeing these reports, it's likely the Fed will...raise rates at the measured pace the market is used to," said Johnson.

Also, housing starts tumbled 17.6 percent in March, the steepest drop in more than 14 years. Wall Street economists had expected starts to drop just 4.8 percent.

Treasury bond prices rallied on the economic news, as investors bet the Fed wouldn't boost rates more aggressively in a bid to slow the economy and ward off inflation. The rally pushed the yield on the 10-year note down to 4.19 percent from 4.27 percent late Monday. Bond prices and yields move in opposite directions.

The consumer price index, which measures the prices of a basket of goods and services, will be released before the bell Wednesday. Analysts surveyed by Briefing.com forecast the index will rise 0.5 percent, but that the core index that excludes volatile energy prices will rise only 0.2 percent.

"If the CPI core rate shows not much of a rise then the market will be able to just focus on good earnings," said Cardillo. "It will show that the Fed is staying ahead of the inflation curve, which is a positive for the market."

In other economic news, the Federal Reserve will also release its "Beige Book," an anecdotal survey that gauges manufacturing strength in different regions around the country.

Market breadth was positive, with advancers beating decliners three to one on the New York Stock Exchange on volume of 1.7 billion shares. On the Nasdaq advancers topped decliners more than two to one as 1.8 billion shares changed hands.

Traders were watching earnings closely, as this week will be one of the busiest of the first-quarter period. More than 400 companies report results, including 12 of the 30 of the Dow components. (For a more detailed look at earnings, click here.)

Johnson & Johnson (up $0.01 to $69.05, Research) said first-quarter earnings rose from a year earlier and beat Wall Street estimates. But shares ended flat after investors digested the full report, which included weak pharmaceutical sales hit by increased generic competition and pricing pressure.

The Dow's other drugmaker, Pfizer (down $0.18 to $27.42, Research), said first-quarter earnings fell 87 percent from a year earlier.

Merrill Lynch (up $0.80 to $54.04, Research) shares rose 1.5 percent after the financial services giant said first-quarter earnings beat forecasts and that it boosted its quarterly dividend 25 percent.

In tech, telecom gear maker Lucent (up $0.25 to $2.61, Research) said second-quarter earnings tripled and issued a positive full-year forecast. Shares jumped 10.6 percent.

EMC (up $1.52 to $12.99, Research) ended up 13.3 percent on news that first-quarter earnings nearly doubled and that the company issued positive guidance for full-year 2005.

Other notable blue chip gainers included Caterpillar (up $1.37 to $84.95, Research), which rose ahead of its earnings announcement due Wednesday, as well as DuPont (up $0.93 to $48.13, Research) and Boeing (up $1.17 to $58.09, Research).

In negative earnings news, General Motors (down $0.10 to $26.09, Research) stock tumbled after it reported its biggest loss since 1992. The embattled automaker also backed away from its lowered full-year earnings forecast amid disappointing sales in North America.

Other big decliners include IBM (down $1.17 to $75.48, Research) and Wal-Mart Stores (down $0.28 to $47.60, Research), as well as Krispy Kreme (down $0.66 to $6.48, Research). The doughnut maker's shares sank on news that it missed another filing deadline with the Securities Exchange Commission.

U.S. light crude for May delivery jumped $1.92 to close at $52.29 a barrel on the New York Mercantile Exchange.

In global trade, Asian-Pacific stocks and major European markets closed higher Tuesday.

COMEX gold gained $5.40 to $434.40 an ounce.

The dollar edged lower against the euro and the yen.