Stocks Resume Their Rally

Traders Tuesday weighed news of a surprising jump in housing starts and a dividend cut from Alcoa

U.S. stocks, closed higher Tuesday with the help of better-than-expected housing starts and inflation data. Homebuilders and home improvement-related issues were among the biggest gainers. Tech issues lured bargain hunters, helping send the Nasdaq composite index up over 4%. Indexes resumed their winning ways after dipping Monday for the first time in five sessions.

On Tuesday, the 30-stock Dow Jones industrial average ended higher by 178.73 points, or 2.48%, at 7,395.70. The broad S&P 500 index was up 24.23 points, or 3.21%, at 778.12. The tech-heavy Nasdaq composite index jumped 58.09 points, or 4.14%, to 1,462.11. NYSE breadth was 24-6 positive, while Nasdaq breadth was 21-6 positive. Trading was active.

Traders also weighed news that Alcoa (AA) slashed its dividend and announced stock and note offerings. Steelmaker Nucor (NUE) warned of a first-quarter loss.

Congress debated President Obama's proposed budget and sought ways to retrieve bonus money paid out by American International Group (AIG).

Bonds fell Tuesday as Federal Reserve policymakers kicked off a two-day meeting. While the Fed is not expected to take any action on interest rates, traders will will await Wednesday's post-meeting statement on whether the Fed will buy Treasuries.

The dollar index eased. Gold futures fell. Oil futures rose.

Citigroup's (C) was up in heavy trading even though influential independent banking analyst Meredith Whitney said that "this year won't look any better than last year" for banks, expecting them to shed assets in the move to raise capital, depressing values. She also said that Citigroup's recent announcement that it had been profitable in the first two months of 2009 would come back to haunt it.

Speaking on CNBC, Whitney said that mark-to-market accounting didn't really matter now, and that without a doubt, credit had been extended too freely in previous years. She also said that subprime asset class were about to take another leg down, and that consumer credit was shrinking faster than estimates.

Senate Democratic Leader Harry Reid said Congress will force executives of AIG to pay back at least some of the $165 million in bonuses they received after the insurance giant got billions in federal bailout money. The AP reported Reid, D-Nev., said Senate Finance Committee Chairman Max Baucus will issue a proposal in the next day or so that would force AIG to return some of the money awarded to executives who oversaw its failure.

As outrage over the bonuses reached a new crescendo across the political spectrum, the Obama administration said it was trying to put strict limits on how future government bailout dollars can be used. But sharp questions have been raised about what the administration knew about the bonuses -- and when. Sen. Richard Shelby, the ranking Republican on the Senate Banking Committee, chastised the administration, saying Treasury Secretary Timothy Geithner should have blocked the payouts.