The blue-chip Dow, buoyed by industrial shares, gained ground and crude oil prices extended the previous session's surge as investors bet on a demand rebound.
Pfizer Inc announced on Monday that its COVID-19 vaccine candidate, developed with German partner BioNTech, showed in trials it had a 90% success rate in preventing infection.
The development led to investors taking profits from market-leading tech stocks that have thrived amid the pandemic recession, a sell-off which pulled the tech-heavy Nasdaq deep into red territory.
"Equity markets in the U.S. have experienced the start of a significant rotation following the vaccine announcement," said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York. "It's been a dramatic change and it's all in anticipation of returning to some form of economic normalcy once the vaccine has been distributed to the broad population."
"The caveat is there's a second wave to the virus that's infecting a record number of people," Ghriskey added. "But at least for now the markets are willing to look through that economic pain to better days ahead once the virus has been eradicated."
Uncertainties from Washington still simmer in the background as President Donald Trump continued to press for investigations of election fraud following his defeat by Democrat challenger Joe Biden.
"The circus going on in DC which is causing concern about a smooth transition of administrations in the months ahead," Ghriskey said. "The flames coming out of Washington are unrelenting and constant."
The Dow Jones Industrial Average rose 262.95 points, or 0.9%, to 29,420.92, the S&P 500 lost 4.97 points, or 0.14%, to 3,545.53 and the Nasdaq Composite dropped 159.93 points, or 1.37%, to 11,553.86.
European shares extended their gains on lingering vaccine optimism and news that EU negotiators have agreed on a budget, a crucial step toward activating the bloc's 1.8 trillion euro recovery package.
The pan-European STOXX 600 index rose 0.90% and MSCI's gauge of stocks across the globe <.MIWD00000PUS> %.
Emerging market stocks lost 1.16%. MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> closed 0.69% lower, while Japan's Nikkei <.N225> rose 0.26%.
U.S. Treasury yields inched lower on Tuesday in choppy trading, consolidating the previous session's gains due to economic optimism in the wake of positive news on a potential coronavirus vaccine.
Benchmark 10-year notes last rose 1/32 in price to yield 0.9561%, from 0.958% late on Monday.
The 30-year bond last rose 7/32 in price to yield 1.7408%, from 1.751% late on Monday.
Oil prices extended Monday's surge, which gave the commodity its biggest daily percentage gain in five months, as views of a possible medical solution to the pandemic outweighed sagging demand from new lockdowns to contain the virus.
U.S. crude rose 2.66% to settle at $41.36 per barrel, while Brent settled at $43.61 per barrel, up 2.85% on the day.
The dollar held its ground against a basket of currencies and the yen hovered near three-week lows as the forex markets absorbed Monday's big moves due to vaccine developments.
The dollar index rose 0.08%, with the euro down 0.05% to $1.1807.
The Japanese yen strengthened 0.08% versus the greenback at 105.30 per dollar, while Sterling was last trading at $1.3249, up 0.65% on the day.
Gold regained some ground lost in Monday's plunge expectations of fiscal and monetary stimulus offered support to the safe-haven metal.
Spot gold added 0.6% to $1,873.53 an ounce.
(Reporting by Stephen Culp; additional reporting by Marc Jones; Editing by Tom Brown)
By Stephen Culp
