NEW YORK (CNNMoney.com) -- Stocks moved higher Tuesday, as investors welcomed a compromise between President Obama and Republican lawmakers that would extend the Bush-era tax cuts for two years.
The Dow Jones industrial average (INDU) rose 78 points, or 0.7%, near mid-day trading. Caterpillar (CAT, Fortune 500) led gainers on the Dow, while shares of 3M (MMM, Fortune 500) fell sharply after the conglomerate issued a outlook that disappointed investors.
The S&P 500 (SPX) gained 7 points, or 0.5%, to 1,230 -- its highest level since September 2008. The tech-heavy Nasdaq (COMP) rose 17 points, or 0.7%.
U.S. markets rallied after President Obama, on Monday, announced a deal with Republican leaders that would extend Bush-era tax cuts for two years and unemployment benefits for 13 months. It would also lower the payroll tax by two percentage points for a year.
The compromise, which is expected to face some resistance from Democrats, is supporting stocks because it gives investors and businesses "clarity and certainty," said Nick Kalivas, vice president of financial research at MF Global.
"It also looks like Obama is moving more to the center," he added. "That's giving the investment community some hope that federal policies will be more business friendly."
Stocks ended Monday's session mixed after drifting around breakeven for most of the day. Investors spent most of the day mulling over Federal Reserve chairman Ben Bernanke's pessimistic comments about the nation's economy.
Meanwhile, commodities struggled to hold gains Tuesday after a big move on Monday.
Commodities have been on a tear as investors see increased demand from countries like China. They're also being used a hedge against inflation and moving higher on the back of the weakening dollar.
Currencies and commodities: The dollar fell against the euro and the British pound, but rallied against the Japanese yen.
Oil for January delivery slipped 35 cents to $89.05 a barrel. Earlier, prices rose above $90 a barrel for the first time since October 2008. Oil for January delivery settled at a new two-year high Monday, at $89.38 a barrel.
Gold futures for February delivery fell $3.10 to $1,413 an ounce, after reaching a new intraday high of $1,432.50 earlier in the session. Gold settled at a record $1,416.10 an ounce Monday.
Silver for March delivery gained 39 cents, or 1.5%, to $30.10 an ounce. Earlier in the session, silver topped $30.75 an ounce -- a new 30-year high.
World markets: European stocks ended higher. Britain's FTSE 100 added 0.9%, the DAX in Germany gained 0.8%, and France's CAC 40 surged 1.9%.
The gains in Europe came as officials in Ireland prepared to release the the country's 2011 budget Tuesday. The new budget will be based on a four-year plan of public spending cuts, and tax hikes announced by Ireland last month as a way to tackle its massive debt.
Kalivas said there is a higher "comfort level" in the market with Ireland, which agreed last week to 85 billion euros ($113.7 billion) of financial support from the European Union, individual EU states, and the International Monetary Fund. But investors are mostly focused on U.S. tax policies, he added.
Asian markets ended the session mixed. The Shanghai Composite added 0.7% and the Hang Seng in Hong Kong jumped 0.8%, while Japan's Nikkei shaved 0.3%.
Companies: The Treasury Department said Monday afternoon it planned to sell 2.4 billion Citi (C, Fortune 500) common shares, priced at $4.35 a share.
That gives the government a $12 billion profit, including dividends and interest payments, on its $45 billion Citi bailout. Company stock rose 19 cents, or 4%, to $4.64 per share.
3M (MMM, Fortune 500) said it expects full-year earnings will be between $5.90 and $6.10 per share in 2011, on sales of up to $30.5 billion. Analysts had been expecting earnings of $6.20 per share, according to consensus estimates from Thomson Reuters. Shares of the company were down 2.5%.
AGL Resources (AGL) and Nicor Inc. (GAS) announced a merger creating a leading U.S. natural gas distribution company. The combined company will be known as AGL Resources. Shares of AGL were down 4%, while shares of Nicor rallied 5%.
Economy: A report on consumer credit Tuesday afternoon is forecast to show a decline of $2.5 billion in October, following a gain of $2.1 billion in the previous month.
Bonds: The price on the benchmark 10-year U.S. Treasury fell, pushing the yield up to 3.09%.
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