NEW YORK (CNNMoney.com) -- Stocks rallied Tuesday afternoon as tumbling crude prices and falling Treasury bond yields revived optimism about the economy and consumer spending.

The Nasdaq composite (up 41.08 to 2,215.82, Charts) rose nearly 2 percent. It was the highest close since June 2, when it ended the session at 2219.41.

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The Dow Jones industrial average (up 102.85 to 11,499.69, Charts) added 0.9 percent and saw its highest close since May 11, when it ended the session at 11,500.73.

The broader Standard & Poor's 500 (up 13.21 to 1,313.11, Charts) index added just over 1 percent. The Russell 2000 (up 16.40 to 724.48, Charts) index of small-cap stocks rallied 2.4 percent.

A nearly three percent slide in oil prices and a fall in Treasury bond yields helped spark the rally. Corporate news helped too, including an upbeat earnings report from Goldman Sachs and boardroom shakeups at Hewlett-Packard and Bristol-Myers Squibb.

"I think positive corporate news today along with the recent decline in oil prices and bond yields over the last few days has helped provide a spark for the market," said Michael Sheldon, chief market strategist at Spencer Clarke.

Brokerages, restaurants, automakers and home builder stocks were among the best performing sectors Tuesday, a change from recent weeks when these sectors came under pressure due to worries about a slowing economy.

"We've seen a dramatic rotation over the last few days, as money has been flowing out of energy stocks, and to a lesser degree, utility stocks, and into some of the more beaten down groups, including the cyclicals," Sheldon added, referring to companies whose fortunes are more tied to economic cycles.

Crude oil prices lost 2.8 percent, falling for the seventh day in a row.

Corporate news also helped sentiment Tuesday, including Goldman Sachs and Best Buy's improved earnings. Investors also welcomed news that Hewlett-Packard's chairwoman will step down and that Bristol-Myers Squibb's CEO has been fired.

On the economic front, investors took in news that the trade gap hit a record in July, amid a jump in oil prices during the month.

However, even this report may have been seen as a positive, should it bolster hopes that the economy is heading for a manageable slowdown, rather than a recession, said Ken Tower, chief market strategist at CyberTrader.

"People are looking for a soft landing and any indication that consumers have stopped buying will upset the apple cart," Tower said. "I think you can make the case that the trade deficit suggests that the seemingly indefatigable American consumer continues to buy things."

Hewlett-Packard said Tuesday that embattled chairwoman Patricia Dunn will leave the company early next year after news emerged that an internal probe of HP's board may have used illegal methods to spy on directors and some journalists. On Tuesday, the Justice Department said it was investigating the matter.

Dunn will be replaced by Mark Hurd, the company's chief executive officer and president. HP (up $0.63 to $36.99, Charts) shares gained 1.5 percent.

Bristol-Myers Squibb (up $0.93 to $24.32, Charts) gained 4 percent after firing its CEO and general counsel. (Full story).

Goldman Sachs (up $7.29 to $158.29, Charts) gained 4.8 percent after reporting higher-than-expected quarterly earnings and setting a new 60 million share buyback plan.

That gave a boost to other financial stocks, sending the Amex Broker/Dealer Securities (Charts) index up more than 3.2 percent.

Best Buy (up $4.51 to $52.28, Charts) reported quarterly earnings that rose from a year earlier and topped estimates. Shares gained 9.2 percent.

Lucent Technologies (up $0.07 to $2.36, Charts) rose over 3 percent in active New York Stock Exchange trade after the telecom gear maker said it was buying software maker Mobilitec for an undisclosed sum. Lucent is being bought by French telecom Alcatel (up $0.44 to $12.29, Charts).

Lucent was one of many stocks boosting the Nasdaq Telecommunications (Charts) index by 2.9 percent.

Apple (up $0.34 to $72.84, Charts) shares were little changed after it announced that it will now offer Disney movies for download through its iTunes store. Amazon.com (up $0.84 to $31.63, Charts) announced a movie download service last week.

Dow 30 stock McDonald's (up $1.05 to $38.17, Charts) gained 2.9 percent on news that August sales at stores open a year or more rose a bigger-than-expected 6 percent.

McDonald's was among the stocks lifting the Dow industrials. In total, 25 out of 30 issues rose, including General Motors (up $1.29 to $33.13, Charts), Home Depot (up $1.56 to $36.62, Charts) and Merck (up $0.86 to $42.15, Charts).

Elsewhere, home-building stocks bounced, lifting the Philly Housing sector (Charts) index by 3.8 percent.

Among the movers, Pulte Homes (up $1.93 to $31.44, Charts) gained 6.7 percent, D.R. Horton (up $1.23 to $23.58, Charts) gained 5.8 percent and MDC Holdings (up $3.51 to $44.68, Charts) gained 8.7 percent.

A variety of stocks that benefit from lower oil prices rose too, including railroad, airline and trucker stocks. The Dow Jones Transportation (up 133.03 to 4,362.19, Charts) average added 3.3 percent.

Market breadth was positive and improved from recent weeks. On the New York Stock Exchange, winners beat losers three to one on volume of 1.79 billion shares. On the Nasdaq, advancers topped decliners by 11 to four as 2.04 billion shares changed hands.

U.S. light crude oil for October delivery fell $1.85 to settle at $63.76 a barrel on the New York Mercantile Exchange.

COMEX gold for December delivery fell $3 to $594.30 an ounce, after slumping $20 on Monday.

Treasury prices rose, lowering the yield on the 10-year note to 4.77 percent from around 4.80 percent late Monday. Bond prices and yields move in opposite directions.

In currency trading, the dollar rose versus the euro and the yen.

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