Stocks pared some gains by late afternoon as more news on the "fiscal cliff" negotiations emerged. U.S. Senate Majority Leader Harry Reid said it will be difficult to reach agreement resolving the cliff tax hikes and spending cuts before Christmas.
"There's been a real explosion in anxiety over this thing. Because markets have become the way they are, you've got people just stepping back," said James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.
"There's a tremendous absence of liquidity in the market," he said.
The S&P 500 had lost 5.3 percent in the seven sessions following Election Day as investors refocused on the threat posed to the economy by the fiscal cliff, a series of automatic spending cuts and tax increases. Markets have mostly recovered those losses, but volume has been thin, suggesting investors are not betting aggressively due to the uncertainty.
The Dow Jones industrial average <.DJI> was up 78.56 points, or 0.60 percent, at 13,248.44. The Standard & Poor's 500 Index <.SPX> was up 9.29 points, or 0.65 percent, at 1,427.84. The Nasdaq Composite Index <.IXIC> was up 35.34 points, or 1.18 percent, at 3,022.30.
Other major tech stocks also rose. Texas Instruments gained 4 percent to $31.01 after bumping up its profit target late Monday. That helped other chipmakers rally, with the PHLX Semiconductor index <.SOX> up 1.9 percent. Microsoft rose 1.4 percent to $27.32.
The lack of demonstrable progress in the fiscal cliff negotiations has kept investors from making aggressive bets in recent weeks.
Republican House Speaker John Boehner called on President Barack Obama to propose a counter-offer on Tuesday.
Retailers like luggage maker Tumi Holding Inc and Michael Kors Holding gained on Tuesday after a positive report from Goldman Sachs Equity Research. Tumi was up 4.7 percent to $21.92 and Michael Kors gained 2.4 percent, reaching $50.92.
By contrast, discount retailers Dollar General and Family Dollar declined. Dollar General said it sees margins under pressure in 2013.
SPX Corp shares fell 9.1 percent to $62.07 and the stock was the biggest percentage decliner on the New York Stock Exchange after sources said the company is in exclusive talks to buy rival Gardner Denver , in a merger that could create an industrial machinery conglomerate with a market value over $7 billion.
The U.S. Treasury is selling its remaining stake in insurer American International Group Inc . AIG's shares were up 5.7 percent at $35.26.
The Fed began a two-day policy-setting meeting on Tuesday. The central bank is expected to announce a new round of Treasury bond purchases when the meeting ends on Wednesday to replace its "Operation Twist" stimulus, which expires at the end of the year.
(Reporting by Gabriel Debenedetti and Caroline Valetkevitch; Editing by Kenneth Barry and Nick Zieminski)