Consumers' good mood is spreading to Wall Street.
Stocks are ending with sharp gains Tuesday after the Conference Board said consumer sentiment rose in May to the highest level since September.
At the close, the Dow Jones industrial average is up 196 to 8,473. The S&P 500 index is up 23 to 910, and the Nasdaq composite index is up 58 to 1,750.
Investors watch confidence measures for signs of whether consumers might start shopping more or making bigger purchases such as cars and homes. Spending by consumers makes up more than two-thirds of U.S. economic activity.
Jim King, chief investment officer at National Penn Investors Trust Co., said the improvement in consumer confidence surprised investors. With unemployment still high and expected to go higher, many market watchers thought the mood on Main Street would remain gloomy.
"The consumer confidence figure is one that no one really pinned a lot of hopes on as going higher," he said.
Traders are seeing green on their screens on the first day back from a long weekend but the compressed week could still trip up the market. Data are due on home sales as well as the economy's overall output in the first three months of the year, and investors will be eyeing General Motors Corp. as its June 1 restructuring deadline approaches.
Stocks dependent on strong consumer spending jumped. Macy's Inc. rose 71 cents, or 6.3 percent, to $11.89, while Best Buy Co. advanced $1.91, or 5.4 percent, to $37.09. Home builder KB Home rose 88 cents, or 6 percent, to $15.52, and DR Horton Inc. rose 52 cents, or 5.8 percent, to $9.53.
Tech stocks showed some of the biggest gains in part after an analyst raised her rating on Apple Inc. She contends the growth of the company's iPhone device has been underestimated. Apple rose $7.77, or 6.3 percent, to $130.27.
Investors have been questioning whether the stock market's massive two-month rally can be sustained given the continuing weakness in the global economy. The Dow is still up 26.4 percent from its 12-year low hit on March 9. Even with those gains, the Dow is still down 41.6 percent from its peak in October 2007.
A month ago, stocks reversed a slide after consumer confidence showed improvement. Investors have since been looking for more signs that the economy is stabilizing. The initial enthusiasm that powered the market's rally since March stalled as investors wondered whether they had been too quick to buy stocks given the problems the economy still faces in areas like housing, unemployment and souring loans.
The jolt from consumer confidence is helping the stock market but some of the improvement is also tied to the stock rally itself.
Bill Stone, chief investment strategist at PNC Wealth Management, said some money managers are forced to step in when the news is good just because they are afraid of being left behind and showing poor returns.
"You've still got a lot of people left that really don't want to like this market but may eventually be forced," he said.
Stone is encouraged by the skepticism because it could help hold the rally in check.
After mixed economic data over the last couple weeks, as well as a huge number of stock offerings by banks, the market is likely to stay volatile in the coming weeks, said Steven Goldman, chief market strategist at Weeden & Co. "The market's had a pretty huge gain here," he said.
Last week, the major market indexes ended modestly higher, but only after seesawing on worries about the economy and banks.
GM reversed an early slide after it outlined a deal with labor unions, rising 14 cents, or 9.8 percent, to $1.57. However the automaker has yet to reach a deal with its major bondholders and is facing a midnight deadline Tuesday for doing so
In other trading, the Russell 2000 index of smaller companies rose 21.19, or 4.4 percent, to 498.81.
About five stocks rose for every one that fell on the New York Mercantile Exchange, where volume came to 771.9 million shares compared with 662.4 million shares at the same time Friday.
Bond prices fell, pushing the yield on the 10-year Treasury note up to 3.49 percent from 3.46 percent late Friday.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude rose 58 cents to $62.25 per barrel on the New York Mercantile Exchange.
Overseas, Britain's FTSE 100 rose 1.1 percent, Germany's DAX index rose 1.4 percent, and France's CAC-40 rose 1.1 percent. Japan's Nikkei stock average fell 0.4 percent.