U.S. stocks rallied Tuesday, pushing the Dow to a record closing high, as Wal-Mart Stores Inc.'s (WMT) stronger-than-expected profit and its plan for more price cuts boosted optimism about holiday spending.

The Dow Jones industrial average shot up 86.13 points, or 0.71 percent, to end at a record 12,218.01. The Standard & Poor's 500 Index gained 8.80 points, or 0.64 percent, for a close at 1,393.22. The Nasdaq Composite Index rose 24.28 points, or 1.01 percent, to 2,430.66.

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A key technical breakout in the S&P 500 fueled buying momentum and investors also drew comfort from a government report that showed the core U.S. Producer Price Index, stripping out food and energy costs, had its sharpest tumble in more than 13 years in October.

"There's a general sense of confidence in the economy still," said Steve Goldman, market strategist at Weeden & Co., in Greenwich, Connecticut. "We're seeing evidence of that in the retail earnings that came out today."

The PPI data reduced concerns about inflation and reinforced expectations that the Fed will keep interest rates steady, while some believed the weak PPI reading increased the chances of a rate cut sometime next year.

Wal-Mart shares jumped nearly 3 percent, or $1.34, to $47.66 on the New York Stock Exchange, and were the Dow's second-biggest advancer.

In the No. 1 spot was Home Depot Inc. (HD), whose stock reversed an earlier decline to end up 4.3 percent, or $1.56, at $37.96 on the NYSE.

The S&P retail index climbed 2.4 percent, its biggest one-day percentage gain in two months.

"Everybody worries about the holiday season, but then things come out better than expected. You can bet on that year after year," said Frank Gretz, market analyst and technician at Shields & Co., a brokerage in New York.

Wal-Mart said it would further cut prices of toys and games in its fourth set of price reductions in categories including electronics, small appliances and toys. It also posted a stronger-than-expected quarterly profit.

As for Home Depot's turnaround from a loss earlier in the session to a higher finish, traders said investors appeared to have long priced in the profit miss and the prospects for a bearish outlook that the No. 1 U.S. home improvement chain gave before the bell.

Analysts also said a key technical breakout in the S&P 500 fueled buying momentum.

"In January 2001 and December 2000, the S&P could not get beyond 1,380. With today's move through 1,380 and 1,390, you have broken that top," said Bruce Zaro, chief technical strategist of Delta Global Advisors in Boston.

Earlier, the Dow also hit a fresh intraday record high at 12,228.01, while the S&P 500 rose to 1,394.49, its highest since November 2000, and the Nasdaq reached 2,430.83, its highest since late February 2001.

Shares of U.S. home furnishings chain Pier 1 Imports Inc. (PIR) surged 20.6 percent, or $1.30, its biggest one-day jump in more than seven years, to finish at $7.62 on the NYSE after sources familiar with the matter said Danish retail magnate Jakup Jacobsen is preparing to bid for the company.

The stock hit a session high at $7.78, up 21 percent.

In other economic news, Federal Reserve Bank of St Louis President William Poole said the odds of another rate hike were about the same as a rate cut, but the current posture of policy was correct.

He also said home builder concessions to lure buyers may be hiding deeper price declines in U.S. housing markets.

Volume was active on the NYSE, where about 1.72 billion shares changed hands, above last year's daily average of 1.61 billion. On the Nasdaq, about 1.99 billion shares traded, exceeding last year's daily average of 1.80 billion.

Advancers outnumbered decliners by a ratio of more than 3 to 1 on the NYSE, while on the Nasdaq, more than two stocks rose for every one that fell.

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