Stocks surge to 18-month highs

NEW YORK (CNNMoney.com) -- Stocks rallied Tuesday, with the Dow, Nasdaq and S&P 500 ending at new 18-month highs following the release of a better-than-expected existing home sales report that suggests a slow economic rebound.

The Dow Jones industrial average (INDU) rose 103 points, or 1%, ending at 10,888.83, the highest close since 11,143.13 on Sept. 26, 2008.

The S&P 500 index (SPX) gained eight points, or 0.7%, and ended at 1,174.17, its highest close since 1,213.09 on Sept. 26, 2008.

The Nasdaq composite (COMP) rose 20 points, or 0.8%, ending at 2,415.24, its highest close since 2,416.98 on Aug. 18, 2008.

Stocks initially struggled out of the gate Tuesday but turned higher following the release of the housing report, which showed existing home sales fell in February from January levels but still topped estimates.

The report was consistent with other recent readings that show the economy is improving, but at a slow pace. Investors are looking for signs of increased growth in the aftermath of a rally that pushed the Dow 65% off its lows of a year ago to 2010 highs hit on Monday. In that same period, the S&P 500 has gained 72% and the Nasdaq has gained 89%.

Stocks have steadily drifted higher over the last month or so after sliding between mid-January and early February. The Dow has now gained in 9 of the last 10 sessions through Tuesday's close, while the S&P 500 and Nasdaq composite have gained in 8 of the last 10 sessions.

"The recent uptick has been more a function of less bad news rather than a lot of good news," said Dean Barber, president at Barber Financial Group.

He said that unemployment, the weakness in housing and the possible spread of Greece's debt problems remain worries for investors, but they've been pushed aside for the time being.

Housing: Existing home sales fell to a 5.02 million unit rate in February from a 5.05 million unit rate in January, according to a National Association of Realtors report released Tuesday. Economists surveyed by Briefing.com thought sales would fall to a 5 million unit rate.

The continued weakness in the housing market has been one of the main worries for investors as they look for signs this year that the economic recovery has some durability. While the report showed a slight decline from the previous month, it still managed to beat forecasts despite severe snowstorms in much of the nation.

Washington: On Tuesday, President Obama signed into law a health care bill that will extend coverage to 32 million more people, require all Americans to have coverage and will prevent companies from denying coverage based on pre-existing conditions.

Stocks rallied Monday after Congressional approval of the bill removed the uncertainty that has surrounded its passage for months.

After Monday's close, the Senate Banking Committee approved a regulatory reform bill put forth by Sen. Christopher Dodd, D-Conn., passing it on to the full Senate for the vote.

On Tuesday, Treasury Secretary Timothy Geithner said that an overhaul of mortgage companies Fannie Mae and Freddie Mac could shape up later this year, although the process of redesigning government-backed mortgage financing is going to be complicated.

Company news: KB Home (KBH) reported a narrower quarterly loss versus a year earlier that was nonetheless weaker than analysts' estimates, with lower revenue that also missed expectations. The homebuilder said prices and demand for its houses fell in the first quarter. Shares slipped 1.7% Tuesday.

Stock gains were broad based Tuesday, with all but two of the Dow's 30 components rising.

Component Caterpillar (CAT, Fortune 500) rose after a Wells Fargo analyst said the stock is a good long-term buy. Other Dow gainers included IBM (IBM, Fortune 500), Coca-Cola (KO, Fortune 500), 3M (MMM, Fortune 500) and Procter & Gamble (PG, Fortune 500).

Market breadth was positive. On the New York Stock Exchange, winners beat losers seven to three on volume of 985 million shares. On the Nasdaq, advancers topped decliners by two to one on volume of 2.31 billion shares.

The dollar and commodities: The dollar rallied versus the euro and the yen.

U.S. light crude oil for May delivery rose 31 cents to settle at $81.91 a barrel on the New York Mercantile Exchange.

COMEX gold for May delivery rose $4.20 to settle at $1,103.70 per ounce.

Bonds: Treasury prices fell, raising the yield on the 10-year note to 3.67% from 3.66% late Monday. Treasury prices and yields move in opposite directions.

World markets: In overseas trading, European markets ended higher. London's FTSE rose 0.5%, France's CAC 40 rose 0.6% and Germany's DAX added 0.5%. Asian markets were mixed, with Hong Kong's Hang Seng index up 0.3% and Japan's Nikkei down 0.5%.