NEW YORK (CNNMoney.com) - Stocks sizzled Tuesday, staring off the new year on the right foot, after the minutes from the last Federal Reserve policy meeting seemed to support Wall Street's hope that the 18-month rate-hiking campaign is nearing an end.

The Dow Jones industrial average (up 129.91 to 10,847.41, Charts) jumped 1.2 percent, the Nasdaq composite (up 38.42 to 2,243.74, Charts) leapt about 1.7 percent and the broader S&P 500 (up 20.51 to 1,268.80, Charts) index gained 1.6 percent.

Special Reportfull coverage America's cheapest gas is in this town Summer drivers to get a break on gas Why gas prices are likely to keep climbing You'll pay a little less for gas this summer Expect relief from record February gas prices Why gas prices are rising

Wall Street's rough road Stocks may face a tough first half after a sluggish 2005. (Full story) The year ahead • The risks to the economy • Outlook rosy for M&A activity • Bank stocks tough year? • Solid insurance outlook • 6 hot picks for 2006

Quick Vote How will the U.S. stock market perform in 2006?   Better than in 2005   Worse than in 2005   About the same or View results

As of 5:30 p.m. ET, Nasdaq and S&P futures pointed to a flat open for stocks, when fair value is taken into account.

Wednesday brings the November read on factory orders as well as December auto and truck sales.

Stocks had slumped at the end of a mixed 2005, but showed a strong start to 2006 Tuesday, following a weak morning on Wall Street.

The minutes from the Fed's Dec. 13 policy meeting suggested that the central bank wanted to communicate to the market that the 18 months of rate hiking are nearly done, giving a boost to stocks after a tough morning and early afternoon. (To read the statement, click here.)

"The minutes kind of fed into the sentiment in the market right now that the Fed is closer to done," said Stephen Stanley, chief economist at RBS Greenwich Capital. "The minutes threw lighter fuel on that one."

Stanley said the bond market seems to be betting on a rate hike at the Fed's meeting late this month and a 50/50 chance of an increase at the next meeting in March. But that may be too optimistic, he said, noting upcoming economic reports may show a need for the central bank to keep going beyond that.

Stocks may have reacted more favorably to the minutes than bonds because the bond market has done well over the last few weeks and stocks have struggled, he said.

"I think this was a fortuitous change of topic for the stock market," he added.

Between a weaker ISM manufacturing report, concerns about what the Fed would say and a sharp jump in oil prices, there were plenty of reasons for stocks to struggle in the morning. In particular, investors were rattled by the more than $2 jump in crude oil prices to over $63 a barrel.

But once the Fed minutes were released, the other concerns were set aside.

Looking forward, the next few weeks still be tough, with another sell-off perhaps necessary before stocks can make a sustained move higher, said Tom Schrader, managing director of U.S. equity trading at Legg Mason.

Stocks slumped in December in a bearish end to a tumultuous 2005.

For the year, the Dow lost 0.6 percent, closing in the red for the first time in three years. The Nasdaq gained 1.4 percent, the S&P 500 gained 3 percent and the Russell 2000 small cap index gained 3.4 percent. Financial markets were closed Monday for New Year's Day.

Market breadth was positive. On the New York Stock Exchange, advancers beat decliners by more than three to one on volume of 1.91 billion shares. On the Nasdaq, winners beat losers three to two on volume of 2.04 billion shares.

Gains covered a variety of sectors, with 26 out of 30 Dow stocks rising.

Exxon Mobil (up $2.30 to $58.47, Research) jumped over 4 percent and was the Dow 30's biggest gainer. It was among the energy stocks lifting the Amex Oil (up 47.03 to 1,033.86, Charts) index by 4.8 percent.

Dow 30 stock Johnson & Johnson (up $1.53 to $61.63, Research) rose after J.P. Morgan upgraded the stock to "overweight" from "neutral," citing a solid lineup of drugs primed to get approval in 2006. Fellow Dow drug stocks Pfizer (up $0.46 to $23.78, Research) and Merck (up $0.94 to $32.75, Research) gained, too.

Intel (up $0.61 to $25.57, Research) rallied 2.4 percent, helping to boost the Philadelphia Semiconductor (up 13.64 to 493.13, Charts) index, or the SOX, by 2.8 percent.

Homebuilders jumped, boosting the Dow Jones Home Construction (up $31.70 to $955.33, Research) index 3.4 percent.

Drug retailer Walgreen (up $1.13 to $45.39, Research) advanced after reporting improved quarterly earnings.

On the downside, GM (down $0.52 to $18.90, Research) sank another 2.7 percent after Banc of America Securities cut its 12-month price target. The stock was the Dow 30's biggest loser last year, declining around 50 percent.

Fellow Dow 30 stock Wal-Mart Stores (down $0.57 to $46.23, Research) fell 1.2 percent after saying over the weekend that December sales at stores open a year or more rose an estimated 2.2 percent from the year-earlier period. Analysts were looking for gains closer to 3 percent.

A morning read from the Institute for Supply Management showed its December manufacturing index slumped to 54.2 from 58.1 in November. Economists thought it would fall to 57, on average. Any reading above 50 points to growth in the manufacturing sector.

A separate report showed a smaller-than-expected rise in November construction spending that nonetheless pushed the annual rate to a new record.

Treasury prices gained, cutting the yield on the 10-year note to 4.37 percent from 4.38 percent late Friday. Bond prices and yields move in opposite directions.

The bond market was in focus last week because of the inversion of the yield curve. For four days running, the 10-year note yield dipped below that of the two-year -- an aberration that could signal an economic slowdown. (For more, click here.)

The dollar fell versus the euro and the yen.

COMEX gold for February delivery added $14.10 to settle at $533 an ounce.