Stocks rose sharply Tuesday, with the Dow Jones industrials and Standard & Poor's 500 index notching their best day in two months, as strong economic reports on home sales and consumer confidence, combined with a temporary drop in crude oil prices, outweighed lingering concerns about runaway energy costs.

The Dow Jones industrial average (search) jumped 159.19 points, or 1.60 percent, to 10,117.62, while the broader S&P 500 Index (search) rallied 17.64 points, or 1.61 percent, to 1,113.05. That was the biggest advance for both gauges since March 25.

The technology-laden Nasdaq Composite Index (search) was up 41.67 points, or 2.17 percent, at 1,964.65, its highest finish since April 28.

Analysts said investors may have interpreted a new report on consumer confidence Tuesday as a sign that economic growth is moderating. That helps eases worries about inflation and seed hopes of strong, consistent corporate profits in coming months, they said.

"The market is a lot more receptive to a lessening of growth as opposed to an acceleration of growth," said Ned Riley, chief investment strategist at State Street Global Advisors.

The market's tone has improved considerably after weeks of selling amid investors' alarm over higher interest rates and rising oil prices. Tuesday's advance was less about a single news item than a reflection of gradually changing sentiment, analysts said.

"I don't see any of those events today as being market movers," said Hugh Johnson, chief investment officer at First Albany Corp.

"The message of the market is that it's starting to look as though conditions are starting to get stable ... and I think that's giving us a lot of relief," he said.

Exxon Mobil Corp. (XOM), Citigroup Inc.(C) and Johnson & Johnson (JNJ) led gainers on the Standard & Poor's 500. But SBC Communications Inc. (SBC) restrained the blue-chip Dow, after it and a union representing thousands of workers reached a tentative new contract.

Crude oil fell sharply on the New York Mercantile Exchange (search), on forecasts that U.S. inventories rose in the week to last Friday, traders said.

Lower oil "is a huge catalyst, coupled with the fact we broke through 1,100 on the S&P, which is a very bullish sign and the first time that happened in about a week," said Michael O'Hare, head of block trading at Lehman Brothers. "Once it consolidated up there, we saw institutional money come in."

The possibility of continued struggle in Iraq combined with fears of even higher energy costs as the peak summer driving season approaches had many investors concerned about the impact on the economy.

NYMEX July crude settled at $41.14 a barrel, sharply down from an overnight high of $41.83 and a 21-year NYMEX record of $41.85 set on May 17.

However, analysts said oil prices could still test new highs on concerns that any increase in output from Saudi Arabia would not be enough to meet rising global demand.

Exxon Mobil's stock was up 66 cents, or 1.5 percent, at $43.46.

SBC Communications (SBC) grabbed headlines after a union representing 100,000 workers reached a tentative new contract that the union said would save jobs and SBC said could save it nearly $2 billion over the next five years. Shares of SBC, the No. 2 U.S. local phone company, shed 14 cents, or 0.6 percent, to $24.05, and were the only Dow component to finish lower.

Genworth Financial Inc. (GNW) topped the New York Stock Exchange's most active list in its first day of trading after its initial public offering late on Monday. Shares of Genworth, a life and mortgage insurance unit of General Electric Co. (GE), ended unchanged at $19.50.

Genworth raised $2.83 billion in its IPO, the largest one in the U.S. so far this year, below an earlier estimate for as much as $3.34 billion in proceeds.

H.J. Heinz Co. (HNZ) reported that profits nearly doubled in the latest quarter to $196.5 million from $102.6 million. But the company's shares were off 37 cents at $36.69 as investors worried that the effect of the weakening dollar, which helped Heinz's overseas sales, may not last for long.

Krispy Kreme Doughnuts Inc. (KKD) ended higher, after saying it would cut the number of new stores it plans to open as the low-carb diet craze curbed demand for doughnuts. The doughnut chain also reported its first quarterly net loss since going public four years ago. Its shares rose 3 cents, or 0.15 percent, to $19.88.

Medical device maker Medtronic Inc.'s (MDT) shares were 6 cents at $47.29, despite reporting a 17 percent increase in earnings, as investors worried that the benefits the company was reaping from the weakening dollar could fade.

Marvel Enterprises Inc. (MVL) was up 24 cents at $19.74 after announcing that it had entered an agreement with Lions Gate Entertainment to develop animated movies to go straight to DVD.

The Conference Board (search) reported that its Consumer Confidence Index for May edged up to 93.2 from a revised 93.0 reading in April.

In a separate report, the National Association of Realtors (search) said sales of existing homes went at a seasonally adjusted annual rate of 6.64 million last month, a 2.5 percent increase over the prior month. Home buyers were scrambling to lock in deals before mortgage rates move higher.

Advancing issues outnumbered declining ones by a nearly 5-to-1 ratio on the NYSE, where volume came to 1.137 billion shares, compared with 922.95 million at the same point in Monday's session.

The Russell 2000 index was up 13.67, or 2.5 percent, at 566.39.

Japan's Nikkei stock average fell 1.3 percent. Britain's FTSE 100 fell 0.3 percent, Germany's DAX index was down 1 percent, and France's CAC-40 was down 0.5 percent.

Reuters and the Associated Press contributed to this report.