Analysts described the stronger market, which represented the Dow’s biggest gain this month, as a relief rally.
David Krein, a senior director for Dow Jones Indexes, said investors were pleased with the retail sales report. Best Buy’s fiscal first-quarter results also helped buoy the markets, Mr. Krein said.
The company reported earnings of $136 million, or $0.35 a share, compared with $155 million, or $0.36 a share, for the same period in 2010. The results beat forecasts, and shares of Best Buy rose more than 4.5 percent to $30.13.
An indicator of consumer purchasing from the Commerce Department showed that overall retail sales in May declined by 0.2 percent, less than the 0.5 percent fall that had been forecast by analysts surveyed by Bloomberg. The figure was a reversal of the 0.3 percent increase in April, and it was the first monthly decline after 10 consecutive gains.
While the decline was not as steep as expected, economists cited areas of concern.
“With higher gas prices eating into the income available for discretionary spending, the consumer faces stiff headwinds,” said Joshua Shapiro, the chief United States economist for MFR.
The Producer Price Index, which reflects commodity prices for manufacturers, rose 0.2 percent in May, according to seasonally adjusted figures provided Tuesday by the Bureau of Labor Statistics. The increase was slightly higher than the 0.1 percent analysts had forecast, and it was below the 0.8 percent rise in April.
The increase in May in the index was attributed mostly to prices for energy goods — including gasoline and electricity — which rose 1.5 percent, the eighth consecutive monthly advance. The food component of the index declined 1.4 percent.
Analysts suggested that the markets were helped after data from China pointed to an increase in industrial output as well as a rise in consumer prices that was in line with forecasts. That helped markets in Asia move higher, and the momentum continued in trading in Europe and the United States.
“It is a pretty powerful relief rally,” said Keith B. Hembre, the chief economist and chief investment strategist at First American Funds.
The Dow Jones industrial average closed up 123.14 points, or 1.03 percent, to 12,076.11. The Standard Poor’s 500-stock index rose 16.04 points, or 1.26 percent, to 1,287.87. The Nasdaq composite index average climbed 39.03 points, or 1.48 percent, to 2,678.72.
The stock market had been in a six-week slump, partly fueled by concerns over the pace of the global and domestic economic recovery, and concerns over sovereign debt problems in the euro zone.
Protracted political wrangling over the national debt ceiling in the United States also has been a factor. Moody’s Investors Service said early this month that it might downgrade the United States credit rating if lawmakers did not raise the ceiling “in coming weeks.”
On Tuesday, the chairman of the Federal Reserve, Ben S. Bernanke, warned about the consequences of continued delay, saying even a short suspension of payments on principal or interest on the Treasury’s debt obligations could severely disrupt financial markets.
He also said that interest rates soared as investors lost confidence, as seen in a number of countries recently.
“Although historical experience and economic theory do not show the exact threshold at which the perceived risks associated with the U. S. public debt would increase markedly, we can be sure that, without corrective action, our fiscal trajectory is moving us ever closer to that point,” he said.
On Tuesday, the yield on the Treasury’s 10-year note, which is linked to interest rates on mortgages and other borrowing, rose to 3.10 percent, from 2.98 percent late Monday. Its price fell 1 point, to 101 7/32.
Stocks, however, kept their momentum throughout the day.
J. C. Penney rose nearly 17.5 percent to $35.37, after the retailer announced that the head of Apple’s retail stores would lead its company.
The Apple executive, Ron Johnson, will replace Myron E. Ullman III as Penney’s chief executive on Nov. 1, the retailer said.
“The markets have been in a corrective stage, and I think we have reached levels now that perhaps we can see some renewed interest in terms of valuations,” said Peter Cardillo, the chief market economist for Avalon Partners.
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