NEW YORK (TheStreet) -- Oil prices backtracked from Monday's bounce, but energy stocks didn't get the memo. Instead, the sector gained more than 1% after several weeks of punishing losses.

Exxon Mobil(XOM) - Get Report added 2%, helping to prop up the Dow Jones Industrial Average to new highs, while Chevron(CVX) - Get Report climbed 2.1% and the Energy Select Sector ETF(XLE) - Get Report gained 1.2%.

"The sector looks cheap," said Bank of America analysts in a report. "With the collapse in crude, the sector now trades at a 20% discount to the S&P 500 where it has historically traded in-line with the market." However, Bank of America warned of a potential value trap as diminished earnings forecasts are seen as likely.

Crude prices have been squeezed after OPEC declined to constrain production last week despite global oversupply and slowing growth in the eurozone and China. On Tuesday, West Texas Intermediate crude slid nearly 3% to $67.30 a barrel on Tuesday, around 36% lower than its mid-summer high.

"The suppliers are going to start restraining production at some point," predicted David Bechtel, principal of Barrow Funds, in a call. "They're going to want to see oil get back up into the mid-$80s, low-$90s minimum. It's probably a project that occurs over the next 12 to 18 months."

If plunging prices continue, though, some of the top dogs at the Federal Reserve don't seem fazed. Speaking at separate events Monday, New York Fed President William C. Dudley and Fed Vice Chairman Stanley Fischer praised the benefits of lower oil prices in fueling domestic growth and consumer spending. It "will lead to a significant rise in real income growth for households and should be a strong spur to consumer spending," said Dudley, speaking to an audience at New York's Baruch College.

Stock gains weren't restricted to energy with the broad-based S&P 500 a stone's throw from all-time highs. The benchmark index closed 0.64% higher after hints of more stimulus from the European Central Bank and the People's Bank of China.

The ECB will meet Thursday to review monetary policy after it began buying asset-backed securities in November. Hopes are high that China will also introduce new monetary easing policies after the latest manufacturing data slipped in November, hovering near the cusp of contraction.

"Europe and China are the two biggest worries, given the size of their economies, and have been for some time so any incremental good news coming out of those countries is very positive for the markets," Croft Funds' portfolio manager Kent Croft said in an interview.

Biotech stocks were also rallying Tuesday, led by Biogen(BIIB) - Get Report , up 6.4% after announcing a late-stage trial for a key experimental Alzheimer's drug. The iShares Biotechnology Index ETF(IBB) - Get Report gained 2.1%.

Automakers were rising after November sales impressed with Fiat Chrysler(FCAU) - Get Report reporting its best November in 13 years and General Motors(GM) - Get Report its best in seven. Toyota(TM) - Get Report added 1.3% after unit sales climbed 3% compared to an estimated 2.1% increase.

It was merger Tuesday as Cypress Semiconductor(CY) - Get Report surged nearly 15% after agreeing to buy Spansion (CODE) for $1.59 billion. Spansion shares were up 22%. Avanir Pharmaceuticals (AVNR) spiked 12.8% after Japan-based Otsuka Holdings agreed to purchase the company for $3.5 billion or $17 a share.

Also helping to fuel general positivity on Wall Street, construction spending in October increased 1.1% from September to $970.9 billion after two straight months of contraction. Economists expected a 0.6% rise. The rise in construction spending was the largest gain since May and the latest economic indicator that shows the domestic recovery on track.

-- Written by Keris Alison Lahiff in New York.