US stocks finish solidly higher

Also helping were gains in Europe's markets on the back of a surge in German investor sentiment, to a seven-month high, and a successful Spanish debt auction that saw borrowing costs drop sharply.

The Dow Jones Industrial Average rose 78.56 points (0.60 percent) to 13,248.44, scoring a fifth straight day of gains.

The broad-market S&P 500 added 9.29 (0.65 percent) at 1,427.84, while the tech-rich Nasdaq Composite leaped 35.34 (1.18 percent) to 3,022.30.

"The markets were impressive overall," said Joe Bell of Schaeffer's Investment Research. "European markets traded higher ahead of our open, which helped provide a bit of a boost early on."

The rally also came as the Federal Reserve's Federal Open Market Committee opened its final policy meeting of the year, with expectations that it will decide to expand bond purchase operations to replace the expiring "Operation Twist" bond swap program.

"It is widely expected that the FOMC will announce a new plan to buy long-term securities after Operation Twist ends. The main difference is that the new purchases (versus those made with 'Twist') will be unsterilized. That is, the new plan will carry the moniker of 'QE4,'" said Patrick O'Hare of Briefing.com.

The FOMC will announce its interest rate decision at 1730 GMT Wednesday.

The technology sector outperformed, leading the Nasdaq higher.

Apple, the biggest company by market valuation, gained 2.2 percent, Google added 1.7 percent and Intel jumped 2.8 percent.

Travel website TripAdvisor bounced 6.6 percent after media tycoon John Malone's Liberty Interactive paid $300 million for a controlling stake, giving a lift to other online travel companies. Expedia was up almost four percent and Orbitz Worldwide rose 3.0 percent.

But ticketing giant Priceline fell 0.4 percent.

Delta Air Lines added 5.1 percent after announcing the purchase of a 49 percent stake in Richard Branson's Virgin Atlantic from Singapore Airlines for $360 million. Branson and his Virgin Atlantic will continue to hold a 51 percent controlling stake.

Insurer AIG climbed 5.7 percent to $35.26 after the US Treasury announced the successful sale of its final 234 million shares at an average of $32.50 a share.

Bond prices fell. The 10-year US Treasury yield rose to 1.65 percent from 1.62 percent late Monday, while the 30-year moved to 2.84 percent from 2.80 percent.

Bond prices and yields move inversely.