NEW YORK ( TheStreet) -- Stocks posted solid gains Tuesday with the major indexes hitting two-year highs, buoyed by fresh deal-making activity and strong earnings reports.

Concerns about debt problems in Europe also eased after China said it will support efforts to stem the crisis.

All three indexes rose to levels unseen since the days leading up to the collapse of Lehman Brothers in September 2008. The Dow Jones Industrial Average climbed 55 points, or 0.5%, to close at 11,533, finishing within shouting distance of a session-high of 11,549. The S&P 500 advanced 8 points, or 0.6%, to close at 1,255, while the Nasdaq Composite jumped 18 points, or 0.7%, to settle the day at 2,668.

Volume totaled around 810 million for the New York Stock Exchange, and 1.67 billion for the Nasdaq. Breadth was positive on both exchanges with advancers ahead of decliners by a more than 2-to-1 ratio.

The Dow and the S&P 500 are now up about 10.6% and 12.5% year-to-date, respectively, while the Nasdaq has gained 17.6% so far in 2010, and market strategists are predicting 2011 will be another strong year for equities.

"People are recognizing the underlying strength of the U.S. economy, "said Gary Flam, portfolio manager at Bel-Air Investment Advisors. "People who were underinvested in equities after the scars of 2008 and 2009 are coming back. We are beginning to see flows into equities after 18 months."

Flam expects stocks will do well in 2011, though he conceded risks do remain.

"We are wide-eyed bulls. There definitely are risks out there with Europe, high deficits on the federal, state and local level and a still-struggling housing market."

Basic materials, capital goods, energy and financial stocks led markets higher. Within the Dow, JPMorgan Chase ( JPM), American Express ( AXP) and Bank of America ( BAC) posted the biggest percentage gains. 3M ( MMM), Merck ( MRK) and Intel ( INTC) were among the handful of blue chips in the red.

A plethora of M&A headlines contributed to Tuesday's bullishness.

Massey Energy ( MEE) is weighing two takeover bids, according to a Wall Street Journal report, but the coal miner has yet to start a formal auction process. The stock closed up 1.2% at $52.45.

Dutch chemicals company DSM offered to acquire Martek Biosciences ( MATK) for $31.50 per share, or $1.09 billion in cash. The board of Martek, a biotechnology company, recommended that shareholders approve the offer. Shares of Martek soared 35.6%, to $31.67.

TD Bank ( TD) said Tuesday it agreed to buy Chrysler Financial from private equity firm Cerberus Capital for $6.3 billion in cash. Shares of TD rose 3.5% to finish the day at $71.95.

Strong quarterly earnings reports also aided investor sentiment.

Shares of Jabil Circuit ( JBL) jumped 10.7% to $19.55 after the electronics contract manufacturer reported its quarterly profits nearly doubled to $132 million, or 61 cents per share, beating expectations for EPS of 54 cents.

Carnival ( CCL) shares added 4.5% to $45.18 after the cruise ship operator beat earnings expectations with a 28.5% jump in year-over-year profits and forecast profits ahead of Wall Street's call.

Shares of CarMax ( KMX) plunged 7.6% to $33.17 despite reporting better-than-expected third-quarter results.

Shares of Adobe Systems ( ADBE) surged 6% to $30.93 after the publishing software company reported better-than-expected fourth-quarter results after Monday's closing bell.

The company said its adjusted profit grew to $285.7 million, or 56 cents per share, in the latest three months, up from $206.8 million, or 39 cents per share. Analysts were expecting earnings of 52 cents per share for the November period. Goldman Sachs ( GS) raised its target price on Adobe's stock to $40 following the report.

Darden Restaurant ( DRI) shares tumbled 5.7% to $47.54 after the Red Lobster and Olive Garden operator offered weak same-store sales guidance for 2011.

Nike ( NKE) shares bid 3.5% lower in afterhours trading despite the athletics retailer meeting expectations for its fiscal second quarter results with earnings of $457 million, or 94 cents per share, on revenue of $4.8 billion. Nike's stock closed up 2.3% to $92.30 ahead of its earnings report.

Tibco Software ( TIBX) surged 6.1% in afterhours trading after the infrastructure software maker posted its tenth consecutive better-than-expected quarterly earnings report with profits of $37.5 million, or 22 cents per share on an adjusted basis. Tibco shares edged 0.3% higher to $21.18 in intraday trading.

Elsewhere in corporate news, shares of SanDisk ( SNDK) gained 4.9% to $51.64 on Tuesday after Raymond James analysts upgraded the stock to a rating of outperform.

Shares of Dell ( DELL) rose 3.6% to $13.84. CEO Michael Dell disclosed in a regulatory filing that he bought over 7 million shares in the company.

Activision Blizzard ( ATVI) gained 0.2% to $12.23 after announcing that worldwide sales of its Call of Duty: Black Ops title had surpassed $1 billion since its November release. The milestone is particularly significant, as theatrical blockbuster Avatar is the only other entertainment title to reach the $1 billion revenue mark within a similar time frame, according to Activision CEO Bobby Kotick.

KeyCorp ( KEY) announced that the Durbin Amendment could significantly cut into the bank's revenue, by as much as $100 million annually, up from its prior estimate for $75 million. KeyCorp's shares rose 1% to $8.49.

Deutsche Bank ( DB) said it agreed to pay more than $550 million to resolve a fraud investigation with the U.S. Justice Department and the Internal Revenue Service to settle a tax-shelter probe related to client transactions from 1996 to 2002. Deutsche Bank shares added 0.5% to $52.05.

Liberty Media Capital ( LCAPA) closed up 1.5% after Barclays Capital analyst James Ratcliffe raised his price target on the stock to $60 from $56.

Stocks started the week on a mixed note on Monday, as the rally in equities over the past three weeks showed signs of running out of steam.

But bulls were back in charge on Tuesday. Asian stocks rose after South Korea's artillery tests failed to provoke a retaliatory response from North Korea. Japan's Nikkei surged 1.5% after its central bank left rates unchanged, continuing its extra loose monetary policy. Hong Kong's Hang Seng climbed 1.6%.

In Europe, stocks rose Tuesday despite Moody's warnings that it may downgrade Portugal's debt rating by as much as two notches. Last week, the rating agency warned that it may downgrade Spain's debt.

Investors shrugged off their concerns, after Chinese Vice Premier Wang Qishan said that China will back efforts to stabilize the European debt crisis. The FTSE in U.K. gained 1% while the DAX in Frankfurt was up 0.8%.

The euro erased earlier gains to trade lower against the dollar at $1.3097. The dollar index edged higher by 0.02%.

There were no economic reports scheduled for release on Tuesday. Investors will be pacing themselves for the final estimate of third-quarter GDP, to be released on Wednesday. Markets are expecting an upward revision to the estimate on the back of the recent pickup in economic activity.

In commodity markets, crude oil for February delivery rose 44 cents to trade at $89.81 a barrel as cold weather drove demand for heating. The February gold contract fell 40 cents to $1,385.70 an ounce.

Elsewhere in commodities, cotton and copper futures pushed up to record highs. Coffee prices reached 13-year highs.

The benchmark 10-year Treasury note was up 10/32, diluting the yield to 3.303%.

-- Written by Shanthi Bharatwaj and Miriam Marcus Reimer in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.