Dow ends up 213, biggest gain since May 10

U.S. stocks, powered by the best pace of new homes sales since the recession, surged sharply higher Tuesday after kicking off the week with small losses as investors continue to struggle with the prospect of coming interest rate hikes and navigate a 2016 market that's been volatile but virtually unchanged.

After an uneventful start to the week, when the Dow Jones industrial average fell 8 points, the blue chip stock gauge rose 213 points, or 1.2%. And despite suffering a full-fledged correction, or 10%-plus drop, earlier in the year, the Dow, thanks to a spring rally, entered Tuesday's trading session up 0.4% for the year.

The Standard & Poor's 500 stock index, which was up 0.2% in 2016 heading into Tuesday, rose 1.4% and the Nasdaq composite, which is down close to 5% this year, is trimming those losses with a 2% gain.

"Just keep in mind, we are just bouncing back and forth," says Gary Kaltbaum, president of Kaltbaum Capital Management. "Hopefully, we do not turn back."

After hitting its last record high back in May 2015, the S&P 500 has stalled, and a big reason for the lack of upward momentum has been the Federal Reserve's on-again, off-again plan to normalize interest rates. The broad market stock gauge has declined 1.4% since the Fed hiked interest rates in mid-December for the first time in nearly a decade.

Giving stocks a boost Tuesday was good news on housing. The Commerce Department reported that sales of new single-family homes jumped almost 17% to an annualized pace of 619,000 in April. That was the highest level since January 2008 and well above the 523,000 new home sales that Bloomberg reports economists were expecting in April.

New-home sales exploded in April: What it means for buyers, sellers

Stocks also got a lift from polls from Europe that show the odds of Britain voting in late June to leave the European Union are dwindling, which has given stock markets there a risk-on feel as well.

"This (Wall Street rally) seems to be a carry over from Europe, which is enjoying a bounce from oversold conditions," Quincy Krosby, market strategist at Prudential Financial told USA TODAY. "Helping was polling data suggesting the 'Brexit' vote -- at this point -- will see a vote to stay within the EU."

The strong new home sales number also "helps to underpin confidence in the economy," adds Krosby.

A rally in financial stocks is also boosting the broader stock indexes, Krosby adds. Bank shares and other financial stocks are finding buyers as odds of a coming interest rate increase from the Fed rise. Higher rates are positive for bank profitability, as it widens the spread between what banks can charge for loans and what they pay out in interest to depositors.

Rate-hike fears were elevated last week when the minutes of the Fed's April meeting revealed that the U.S. central bank is looking seriously at hiking rates at its June meeting, a possibility that has been reinforced in recent days by Fed members confirming that the economy may be ready to absorb higher rates.

Investors and analysts are waiting to see if Fed Chair Janet Yellen, who speaks publicly Friday, "endorses the rate-hike rhetoric espoused by the recent parade of Federal Reserve speakers," Krosby adds.

Also providing a lift for stocks Tuesday was a reversal to the upside for U.S.-produced crude, which was trading lower earlier in the session but has turned positive. A barrel of U.S. crude was up 74 cents, or 1.5%, to $48.82.

Stocks in Europe were building on earlier gains. The broad Stoxx Europe 600 was 2.2% higher.

In Asia, Japan's Nikkei 225 fell 0.9% and shares fell 0.8% in mainland China.