Gains were kept in check, however, after a report showed consumer confidence slumped to a record low in December.
"This is not good, and while what consumers do rather than what they say or think is far more important, consumers aren't doing much of anything right now," said Dan Greenhaus, equity strategist at Miller Tabak.
"I hope the unprecedented government interventions have a stabilizing effect both on the economy and consumers' psyche," he said.
Perhaps helping on that front, crude-oil prices declined after jumping back above $40 on Monday. Light, sweet crude for February delivery fell 99 cents to end at $39.03 a barrel on the New York Mercantile Exchange.
The Dow Jones Industrial Average rose 102 points, or 1.2%, to 8,588, with 25 of its 30 blue-chip components advancing, led by a 5% gain in General Motors and a nearly 9% rise in shares of aluminum giant Alcoa Inc. .
The S&P 500 index gained 11 points, or 1.4%, to 881, and the Nasdaq Composite advanced 23 points, or 1.6%, to 1,534.
With only one trading session left in 2008, stocks' performance has been reflecting the wounds of the past year, in which the housing-market collapse and credit crisis led to a global economic recession.
Year to date, the Dow industrials have slumped 35%, the S&P 500 has lost 40%, and the Nasdaq Composite has fallen 42%.
Key to the U.S. economy, the auto industry was again in focus Tuesday. GMAC, the lending arm of GM, said it will restart auto financing for more U.S. customers because it has better access to funding after converting to a bank-holding company.
Further priming the pump, GMAC said late Monday that it's receiving $5 billion from the government in exchange for preferred stock. GM could also get up to another $1 billion from the Treasury Department so it can take part in a deal to help GMAC raise more capital.
The latest round of funding for the stricken auto giant comes on top of the $17.4 billion in assistance the government agreed to provide GM and Chrysler LLC earlier this month.
Shares of smaller rival Ford Motor Co. rose nearly 2%. Ford wasn't part of the federal assistance program.
The materials sector was among the leaders of the S&P 500, fueled by a 11% advance in shares of Rohm & Haas Co. . Dow Chemical Co. may be able to use a $13 billion bridge loan to fund its acquisition of Rohm & Haas, according to a report in the Financial Times.
On Monday, shares of both firms slid as the deal seemed in jeopardy after Kuwait pulled out of a joint venture with Dow. Both Moody's Investors Service and Standard & Poor's downgraded their credit ratings on the chemicals giant late Monday. .
Trading volume remained very light, with many traders and investors absent in a holiday-shortened week. On the New York Stock Exchange, 505 million shares exchanged hands, and on the Nasdaq stock market, 295 million shares traded. Gaining issues topped decliners by 3 to 1 on the NYSE and by nearly 2 to 1 on Nasdaq.
Also Tuesday, The Wall Street Journal reported that home and auto insurer Nationwide Mutual Insurance Co. will close a $2.48 billion deal on Jan. 1 to buy back the 34% of Nationwide Financial Services Inc. that it doesn't currently own.
The price was hammered out months ago before life insurers got hit by the global financial crisis, but Nationwide Mutual maintains the deal will benefit policyholders -- who own the company -- over the long term.
Consumer confidence hit a record low in December, according to the monthly Conference Board index released Tuesday, as worries deepened about current business and labor-market conditions.
The December cosumer confidence index fell to 38 from a downwardly revised 44.7 in November. Economists surveyed by MarketWatch had expected a December reading of 45.8.
The market showed little reaction to an index of home prices falling 2.2% in October from September. The S&P Case-Shiller index also showed home prices were down 18% from October 2007. .
U.S. stocks fell Monday but finished well above their worst levels of the day, as rising oil prices pressured consumer-related shares and investors ditched weaker-performing financial stocks. The Dow industrials lost 31 points, the S&P 500 fell 3 points, and the Nasdaq Composite dropped 19 points.
By Nick Godt