Stocks gained strongly after bouncing between small gains and losses Tuesday morning as investors weighed Europe's precarious debt situation, a sobering growth outlook and the start of a key Federal Reserve meeting.
The International Monetary Fund offered a more pessimistic view about the U.S. economy than it had previously held. The IMF said it expects economic growth of only 1.5 percent this year and 1.8 percent in 2012. In June, it had forecast 2.5 percent and 2.7 percent growth in 2011 and 2012 respectively.
The forecast gave weight to some investors' fears that the U.S. could be on the brink of another recession.
Those fears have been compounded by a shaky global economy. The IMF also lowered its outlook for the 17 countries that use the euro, because it fears Greece will default on its debt obligations.
Investors are looking to the Fed for signs that the United States can avoid a recession. The central bank begins a two-day policy meeting Tuesday that some investors hope will result in specific steps to stimulate the U.S. economy.
The government said before the market opened Tuesday that builders began work on 5 percent fewer new homes in August than they did in July, in part because of delays caused by Hurricane Irene. The seasonally-adjusted 571,000 homes was lower than analysts expected and less than half the rate economists say represent a healthy housing market.
U.S. residential real estate has failed to rebound from the housing market decline that began in 2006 and helped trigger the global financial crisis.
Technology company Oracle Corp. reports its quarterly earnings after the closing bell. Investors are looking for signs that the company has had success in its server computer business.
Overseas markets held onto small gains in the hope that Greece would make progress in its bailout discussions. In afternoon trading, Frances's CAC-40 rose 0.4 percent while Germany's DAX rose 1.6 percent and the FTSE 100 index of leading British shares rose 0.8 percent.