Also yesterday, a measure of consumer confidence rose sharply, reversing three months of declines, as shoppers began adjusting to a payroll tax hike last month.
Investors closely watched testimony by Federal Reserve Chairman Ben Bernanke. The Fed chairman said that the automatic government spending cuts due to take effect Friday would put a drag on the economy. He urged lawmakers and the White House to replace the cuts with longer-term policies to reduce the budget deficit.
Investors shouldn't be dissuaded from buying stocks by any flare-up in Europe's economic troubles, says Hans Olsen, a strategist at Barclays. The strategist says stocks should have a good year thanks to earnings growth and a pickup in corporate dealmaking.
Deals have accelerated sharply in the last three months and have involved household names including Heinz, Dell and American Airlines. Some of the acquired companies soared 20 percent or more when the deals are announced.
It's not yet clear how the recent see-saw in the market will affect investors. Individual investors have been creeping back into stocks since the start of this year, but the swings might yet unnerve them.
"The gyrations worry them, it scares them, even though the market is up," says Gabriel Fancher, an adviser at the Financial Group, a financial planner. "The market seems out of people's hands these days."
Tuesday's good news about the economy in the US helped investors turn their focus away from Europe.
While US market rose, European markets fell again as investors worried about Italy's political situation. The country is facing political gridlock after elections left Parliament with no clear-cut winner.
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