A continental divide separated stock investors in Europe and the U.S. on Tuesday.
Across the Atlantic, stock markets tumbled as elections in Italy threatened to spark new political turmoil in the region.
In the U.S., the Dow Jones Industrial Average had one of its best days this year. Having staged a selloff on Monday in response to Europe's troubles, investors were more focused on prospects for continued stimulus by the Federal Reserve on Tuesday.
"Europe simply couldn't muster any strength because of their political issues," said Bruce McCain, chief investment strategist at Key Private Bank.
Much of the reason for the diverging fortunes was timing. Italy's election results on Monday appeared to be coming in as planned, and investors had anticipated the victory of parties that would continue with austerity measures designed to help Italy cut its debt load. But as European markets were closing Monday, the polls turned, and by Tuesday morning the result was inconclusive, raising the prospect of a second vote in coming weeks and more turmoil for financial markets.
Italy's FTSE MIB index slumped 4.9% and the Stoxx Europe 600 fell 1.3%. The selloff extended to bond markets, where investors dumped Italian and Spanish government bonds, sending yields higher, and fled to the relative safety of German and French government debt.
In the U.S., the Dow had time Monday to react to the election news and lost 216 points. By Tuesday, investors were focused on remarks from Fed Chairman Ben Bernanke, who strove in testimony before Congress to assure that the central bank's monetary-easing measures would continue.
The Dow gained 115.96 points, or 0.8%, to 13900.13, while the Standard & Poor's 500-stock index rose 9.09 points, or 0.6%, to 1496.94.
"The reassurance that the Fed chairman tried to offer gave investors a pretext for kind of ignoring what's going on in Europe, but we'll see in the days ahead whether U.S. stocks will be able to steer an independent course," Mr. McCain said.
Treasury prices also rallied in response to Mr. Bernanke's comments. The yield on the 10-year Treasury note fell to 1.877%, from 1.895% on Monday, as bond yields move inversely to prices. Gold jumped $29, or 1.8%, to $1,615.20 a troy ounce, its largest one-day percentage gain since November. Gold tends to benefit from easy-monetary policies, as investors seek the metal as a hedge against the inflation that may follow the increased liquidity in the financial system.
Oil prices dropped 0.5% to settle at $92.63 a barrel. The dollar rose against the euro and yen.
Among the biggest stock market movers, Home Depot (HD)
"Quarterly earnings reports have been good enough, including Home Depot, to bring buyers into the market," said Alan Lancz, president of Alan B. Lancz & Associates, a money manager based in Toledo, Ohio.
Home-builder stocks were among the biggest beneficiaries of a slightly larger-than-expected rise in the S&P Case-Shiller 20-city home-prices index for December. PulteGroup (PHM)
Elsewhere on the economic front, new-home sales posted the biggest jump in nearly two decades last month, reaching the highest level since mid-2008, according to the Commerce Department.
Cracker Barrel Old Country Store (CBRL)
Tyson Foods (TSN)
Write to Chris Dieterich at email@example.com