The close: Dow surges to highest level since 2007

Stocks ended Tuesday at session highs after a number of U.S. banks passed the Federal Reserve's stress tests – adding to an upbeat day that included big stock market gains in Europe and a strong report on U.S. retail sales.

The Dow Jones industrial average closed at 13,177.68, up 217.97 points or 1.7 per cent, marking its highest level since December 2007. The broader S&P 500 closed at 1395.96, up 24.87 points or 1.8 per cent. In Canada, the S&P/TSX composite index closed at 12,537.69, up 109.68 points or 0.9 per cent.

As well, the tech-heavy Nasdaq composite index, on fire throughout 2012, blew past the 3,000-point threshold, closing at 3039.88 – its highest close since 2000.

The gains follow a report that showed U.S. retail sales rose 1.1 per cent in February. That topped estimates after excluding items such as car and gasoline sales, and pointed to potentially stronger gross domestic growth in the first quarter.

The Federal Reserve delivered its scheduled monetary policy statement in the afternoon, acknowledging recent economic improvements – such as last Friday's upbeat monthly payrolls report – without backing down from its commitment to keeping its key interest rate at ultra-low levels through at least the end of 2014.

Major indexes, already up impressively for the day, received another boost after JPMorgan Chase & Co. said it had passed the Fed's stress tests and boosted its dividend to 30 cents (U.S.) a share, up 5 cents. The shares rose 7 per cent.

Other bank stocks also jumped: Bank of America Corp. and Citigroup Inc. rose 6.3 per cent each.

After markets closed, the Fed released a statement saying that 15 of the 19 banks in its stress test had passed, showing that their capital positions will allow them to survive under conditions of 13 per cent unemployment, a 50 per cent drop in equity prices and a 21 per cent slide in housing prices.

However, Tuesday's stock market gains were broad, lifting all 30 stocks within the Dow. Economically sensitive stocks led the gains: Alcoa Inc. rose 4.5 per cent and Caterpillar Inc. rose 4 per cent.

Among Canadian stocks, financials were particularly strong: Manulife Financial Corp. rose 3.1 per cent and Royal Bank of Canada rose 2.2 per cent. Energy stocks followed the price of crude oil higher: Suncor Energy Inc. rose 2.6 per cent after oil rose to $106.71 a barrel, up 37 cents.