NEW YORK (CNNMoney) -- U.S. stocks surged Tuesday as concerns about the European debt crisis eased and investors welcomed signs of strength in the U.S. housing market.
The Dow Jones industrial average (INDU) rose 337 points, or 2.9%, to end at 12,103. The S&P 500 (SPX) jumped 36 points, or 3%, to 1,241. The Nasdaq (COMP) gained 80 points, or 3.2%, to 2,604.
Investors focused on positive headlines out of Europe, including an upbeat reading on German consumer confidence and a surprisingly strong auction of Spanish debt.
Traders were also looking ahead to the results of a key lending program by the European Central Bank on Wednesday. The ECB announced a series of "non-standard" measures earlier this month designed to boost liquidity for European banks struggling to secure funding in the wholesale market.
"The market is coming to the realization that this is an important step to prevent a credit crisis and bring down yields" on government bonds, said Peter Cardillo, chief market economist at Rockwell Global Capital. Analysts expect banks to borrow up to €300 billion under the first of the ECB's three-year refinancing operations.
On Tuesday, banking stocks were among the best performers, after the sector dragged down the broader market Monday.
Bank of America (BAC, Fortune 500) was up 4% to $5.19 a share, one day after the stock fell below $5 per share. Citigroup (C, Fortune 500), Goldman Sachs (GS, Fortune 500), JPMorgan (JPM, Fortune 500), Morgan Stanley (MS, Fortune 500) and Wells Fargo (WFC, Fortune 500) all moved higher.
The gains came despite the release of a highly anticipated set of proposals from the Federal Reserve to strengthen regulation and oversight of the banking sector.
Meanwhile, stocks were also supported by a better-than-expected report on the U.S. housing market. The number of new homes breaking ground rose to an annual rate of 685,000 in November, with requests for building permits rising 1.8% to 681,000 compared to last year.
Analysts had expected housing starts to hit 627,000, and building permits to come in at 633,000 for November, according to consensus estimates from Briefing.com. Trading volumes are expected to remain light as many investors have already closed their books for the year. That could make for a choppy week as low trading volumes can exaggerate swings in the market.
"We expect today's lift to be short-lived and for markets to remain relatively quiet into the holidays," said Camilla Sutton, chief currency strategist at Scotia Capital.