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The markets zoomed higher amid optimism lawmakers will be able to forge a deal to keep the country from hurtling over the full fiscal cliff.
As of 2:10 p.m. ET, the Dow Jones Industrial Average climbed 113 points, or 0.85%, to 13348, the S&P 500 gained 14.6 points, or 1%, to 1445 and the Nasdaq Composite rose 40 points, or 1.3%, to 3051.
The Dow, S&P and Nasdaq all had their best day of the month on Monday amid hopes of a U.S. budget deal. The S&P, considered one of the best broad-market barometers, also closed at its highest level since October 22.
The upbeat sentiment persisted on Tuesday on news reports both sides are coming closer to a deal. Sources told Fox News the Obama administration offered Republicans a higher threshold for tax increases in a move House Speaker John Boehner's office called "a step in the right direction." At present, there is a framework for $1 trillion in revenue increases coupled with $1 trillion in spending cuts, according to Fox News. However, sticking points remain, including raising the debt ceiling, which would be important in staving off a debt debacle like the one that roiled markets last summer.
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House Republicans are also working on a 'Plan B' to avoid tax hikes on most Americans should a deal not come through in time, FOX Business' Rich Edson reported. However, the White House nearly immediately rejected the notion of a plan, but said it remains hopeful a deal will be struck.
The trading community remained cautiously optimistic. Art Cashin, UBS director of floor operations at the New York Stock Exchange, wrote of the reported proposals, "unfortunately, none of the give and take sounds like a grand design package." He wrote that instead, it "looks like cobbling together a short-term band-aid solution."
The economic calendar was set to be fairly light on the day, with the pace of releases heating up toward the middle and end of the week.
Energy futures were broadly higher. The benchmark crude contract climbed 76 cents, or 0.86%, to $87.95 a barrel. Wholesale New York Harbor gasoline jumped 1.7% to $2.699 a gallon. In metals, gold dropped $19.90, or 1.2%, to $1,678 a troy ounce.
The Euro Stoxx 50 gained 0.31% to 2636, the English FTSE 100 rose 0.41% to 5936 and the German DAX climbed 0.42% to 7637.
In Asia, the Japanese Nikkei 225 rallied 0.96% to 9923 and the Chinese Hang Seng slipped 0.08% to 22495.