Stocks jumped Tuesday, snapping back from two straight sessions of decline, as strong earnings from telephone company Verizon (VZ) and a better-than-expected reading on consumer confidence prompted investors to buy beaten-down shares.

Verizon, the biggest percentage gainer in the Dow Jones industrials, helped the blue-chip index gain more than 120 points, springing back above 10,000, and post its largest one-day percentage gain in nearly two months.

The Dow Jones industrial average (search) rose 123.22 points, or 1.24 percent, to 10,085.14, its biggest percentage rise since early June. The Standard & Poor's 500 Index (search) gained 10.76 points, or 1 percent, to 1,094.83, and the technology-laced Nasdaq Composite Index (search) advanced 30.08 points, or 1.64 percent, to 1,869.10.

"Things are bound to bounce a little bit," said Lisa Hansen, head trader at Transamerica Investment Management, pointing to the sharp declines last week in all three major market gauges. "Any particular stock, you look at it and say, 'Wow, it's down a lot. Maybe I'll add a little bit."'

Analysts believed the market was oversold and due for a strong rally. Volume on the New York Stock Exchange was moderate, but strong compared to the light trading that has marked recent weeks.

Investors were also cheered by a surge in consumer confidence. The Conference Board's (search) consumer confidence index rose to 106.1 in July, the highest level since June 2002 and up from last month's revised reading of 102.8.

"It looks to me like the stock market is trying to reverse this downward trend we've been in," said Brian Bush, director of equity research at Stephens Inc. "It would appear that the economy is reaccelerating again in July, and that could lead to better performance on the market."

In other economic news, new home sales fell by a less-than-expected 0.8 percent to 1.326 million homes in June. Wall Street had estimated 1.275 million new homes sales for the month.

This kind of economic data, analysts said, shows that despite the concern over second-half earnings growth, the economic and corporate profits remain on track.

"This kind of volatility that we've seen this month is part of the normal workings of the market," said Rafi Zaman, managing director for U.S. equities at Dupont Capital Management. "The underpinnings of the market are still positive. Earnings growth as we've had, around 15 percent this year, is unsustainable. Between 7 and 8 percent is sustainable, and we're getting there."

Still, despite analysts' upbeat assessment, the market remained tentative, and Tuesday's advance could evaporate in profit-taking if the next big batch of earnings reports on Wednesday and Thursday disappoint the market. Among the companies reporting Wednesday are Boeing Co., Sony Corp (SNE) and Time Warner Inc. (TWX); on Thursday, Exxon Mobil Corp. (XOM), Bristol-Myers Squibb (BMY) and Gillette Co. (G) are scheduled to release their results.

Verizon, the largest U.S. telephone company, posted higher second-quarter profit, helped by growth in its wireless arm. It jumped $1.36, or 4 percent, to $37.86 Tuesday, making it one of the biggest boosts to the blue-chip Dow and the broader S&P 500.

"Verizon is helping a lot," said Todd Leone, head of listed trading at S.G. Cowen.

The American Stock Exchange's North American telecommunications index shot up 1.7 percent.

U.S. Steel Corp. (X) gave a bullish outlook for the rest of the year, and exceeded analyst estimates on its second quarter earnings by 9 cents per share. U.S. Steel was up 15 cents at $34.07.

Defense contractor Lockheed Martin (LMT) gained 20 cents to $52.40 on its positive earnings, which beat expectations by a nickel per share. The company said its year-end results would likely come in at the high end of Wall Street's estimates.

International Business Machine Corp. (IBM) also helped prop up the Dow after it said it had been selected to build a supercomputer for the U.S. Department of Defense that would be used by the military for war simulation, weather forecasting and other applications. IBM rose 79 cents, or 1 percent, to $85.88.

Internet media companies were another bright spot after a report by JupiterResearch said online advertising spending is expected to nearly double by 2009 to $16.1 billion and represent a much higher proportion of marketers' total budgets in that time. Yahoo Inc. (YHOO) climbed $1.79, or 6 percent, to $30, and eBay Inc. (EBAY) soared $4.19, or 6 percent, to $78.46.

Nortel Networks Corp. (NT) warned on Tuesday that it must make cuts after missing its gross margin target due to higher-than-expected costs, sending its stock down 64 cents, or 16 percent, to $3.42.

A reshuffling of the board of directors at Martha Stewart Living Omnimedia Inc. (MSO) sent shares 12 cents higher to $11.12. The company named a new chairman and replaced one of its directors as it refocuses on building its brand after founder Stewart's conviction and prison sentence.

The Russell 2000 index of smaller companies was up 11.12, or 2.1 percent, at 544.61.

Overseas, Japan's Nikkei stock average tumbled 1.2 percent. In Europe, Britain's FTSE 100 and France's CAC-40 both climbed 0.9 percent for the session, while Germany's DAX index gained 1.6 percent.

Reuters and the Associated Press contributed to this report.