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(Richard Drew/AP)
(Richard Drew/AP)

The close: Dow, TSX cruise higher despite euro zone tremors Add to ...

North American stocks turned in impressive gains on Tuesday, shaking off Monday's steep decline as investors looked beyond rising European borrowing costs and instead focused on hopes for policy stimulus from the U.S. Federal Reserve.

The Dow Jones industrial average closed at 12,573.80, up 162.57 points or 1.3 per cent -- rising from a relatively flat start to the day when nerves were still recovering from Monday's 143-point retreat. The broader S & P 500 closed at 1324.18, up 15.25 points or 1.2 per cent. In Canada, the S & P/TSX composite index closed at 11,497.30, up 95.52 points or 0.8 per cent.

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Bloomberg News reported that Charles Evans, the head of the Federal Reserve Bank of Chicago and an alternate member of the Federal Open Market Committee, said he would support more stimulus -- rekindling expectations that the Fed will make some sort of effort to give the flagging U.S. economic recovery a boost. Despite similar hopes last week, Fed chairman Ben Bernanke offered few concrete hopes that any such stimulus was in the works.

Gold, which tends to rise in expectations of Fed stimulus, did just that: It hit $1,613.80 (U.S.) an ounce in New York, up $17.

Tuesday's broader gains come despite ominous signs in Europe. There, Spanish and Italian bond prices plunged -- sending yields and borrowing costs higher. The yield on Spain's 10-year government bond jumped to 6.65 per cent, up more than 18 basis points (there are 100 basis points in a percentage point) to a fresh euro-era high, suggesting that investors are concerned about more than the nation's banks. Similarly, the yield on Italian 10-year government bonds rose to 6.14 per cent, up nearly 14 basis points.

At the same time, Fitch Ratings downgraded 18 Spanish banks after the euro zone agreed to bolster the country's banking sector with a bailout of up to 100-billion euros. Fitch also warned that it could cut the credit ratings of European nations, with the credit crisis still not under control.

Despite the tremors, European stocks fared relatively well. Among major indexes, the U.K.'s FTSE 100 rose 0.8 per cent and Germany's DAX index rose 0.3 per cent.

Bombardier Inc. rose 6 per cent, a day after NetJets Inc. -- a company controlled by Warren Buffett's Berkshire Hathaway Inc. -- said it would order 100 Challenger jets and options for another 175 aircraft. The deal, valued at $7.3-billion (U.S.) is Bombardier's biggest-ever.

Apple Inc. rose 0.9 after it unveiled new computer models and operating system enhancements at its Worldwide Developer Conference in San Francisco on Monday -- but had nothing to say about speculation that it is developing a television.

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