NEW YORK ( TheStreet) -- U.S. stocks finished with modest gains Tuesday after a Federal Reserve official called for an aggressive asset purchase program.

Investor sentiment also got a lift from chatter about a coordinated bond-buying action in Europe and easing concerns about the Chinese economy.

The Dow Jones Industrial Average closed up 51 points, or 0.39%, at 13,169. At its session-high of 13,216, the blue-chip index was within 125 points of its 2012 intraday high of 13,338 on May 1.

Within the Dow, 21 of 30 components were in the green, led by Boeing ( BA), Cisco ( CSCO), JPMorgan ( JPM) and United Technologies ( UTX).

The biggest percentage decliners among the blue chips were Coca-Cola ( KO), Johnson & Johnson ( JNJ), Merck ( MRK) and Pfizer ( PFE).

Pfizer and J&J were under pressure after the drug giants discontinued development of a highly anticipated experimental treatment for Alzheimer's disease after the drug failed to achieve key goals in a late stage clinical trial.

The S&P 500 rose 7 points, or 0.51%, to finish at 1401, settling above 1400 for the first time in three months and moving within 2% of its four-year high.

The Nasdaq Composite surged 26 points, or 0.87%, to finish at 3016. It was the index's first close above 3000 since May 3.

All three major U.S. equity indices rose for a third straight session.

In the broad market, the consumer cyclicals, energy and capital goods sectors fared best while utilities, health care and consumer non-cyclicals ticked lower.

Winners outpaced losers by a roughly 2-to-1 ratio on both the New York Stock Exchange and Nasdaq. Volume totaled 3.67 billion on the Big Board and 1.89 billion on the Nasdaq.

Buyers keyed off comments from Eric Rosengren, president of the Federal Reserve Bank of Boston, who said in an interview with The Wall Street Journal that the Fed should launch an aggressive, open-ended bond buying program that would continue until economic growth picks up and unemployment starts falling again.

Rosengren also said he believes the Fed should buy more mortgage-backed securities and possibly U.S. Treasury bonds, and make it clear that it will continue to do so "until we start seeing some pretty significant improvements in growth and income," the newspaper reported.

European stimulus hopes also were prevalent. Ahead of the European Central Bank's next meeting on Sept. 6, there are growing expectations that the central bank will be working out a plan with the bailout funds to lay out a path on bond-buying.

"The markets today have hit new highs as a result of mostly extensive short covering in anticipation of more central bank stimulus in the U.S. and bond buying by the European Central Bank of distressed debt in Europe," said Jeffrey Sica, president and chief investment officer of Sica Wealth Management. "The typical low volume has amplified the returns and given investors the illusion that market conditions are better than they are."

Sica said the vagueness of the promise of European Central Bank president Mario Draghi to do "whatever it takes" to keep the eurozone intact is actually helping stocks right now.

"We have yet to hear what the 'whatever' is, so investors are 'filling in the blank' with the dream solution of extensive bond buying by the ECB."

Sica cautioned that although bond buying would reduce borrowing costs significantly, the ECB does not have the capital available unless they print money -- the notion of printing money may appease investors temporarily but "is not only against the charter of the ECB -- it will ignite incomprehensible inflation in distressed countries, which will lead to social unrest ."

He anticipates this rally to continue as long as these hopeful ECB expectations remain strong. On the other hand, the market will fall when these expectations aren't met and the economy gets worse and not better, Sica said: "The only way to true recovery is to abandon 'government induced' solutions and return to a focus on a free market that doesn't rely on artificial liquidity as its foundation."

Separately, the Australian central bank decided to leave interest rates unchanged, saying that China growth is not slowing further. The country is the No. 1 business dealer with China. The Australian dollar was soaring close to a five-month high.

The U.S. economic calendar featured only consumer credit for June, which swelled by $6.5 billion, less than the consensus estimate for a $10 billion increase. May's surprise $17.1 billion jump was revised down to $16.7 billion.

September crude oil futures settled up $1.47 at $93.67 a barrel. December gold futures settled down $3.40 at $1,612.80 an ounce.

The benchmark 10-year Treasury fell 17/32, raising the yield to 1.629%. The greenback was up 0.01%, according to the dollar index.

In Europe, Italy's national statistics office reported that the economy there shrank for a fourth consecutive quarter in the second quarter and reported a bigger-than-expected drop in June industrial production. German manufacturing orders declined in June. Also, the Office for National Statistics reported a less than expected fall in industrial output in the United Kingdom for June.

The FTSE in London closed up 0.56% and the DAX in Germany settled up 0.71%.

Hong Kong's Hang Seng index closed up 0.37% and the Nikkei in Japan finished up 0.88%.

British bank Standard Chartered saw its shares drop sharply Tuesday following charges from the United States that the bank was involved in laundering money for Iran.

New York State Department of Financial Services alleged on Monday that Standard Chartered "schemed with the Government of Iran and hid from regulators roughly 60,000 secret transactions, involving at least $250 billion, and reaping SCB hundreds of millions of dollars in fees," over a nearly 10-year period.

Standard Chartered said it "strongly rejects" the allegations.

The New York State financial regulator has threatened to revoke the license of Standard Chartered to operate in the state pending a formal hearing.

Sirius XM Radio ( SIRI) reported better-than-expected second-quarter revenue of $837.5 million. Analysts, on average, were expecting revenue of $834.38 million. Earnings per share were in line with estimates of 2 cents a share. Shares popped 4.6%.

Drugstore chain CVS Caremark ( CVS) said it predicts full-year adjusted earnings of $3.32 and $3.38 a share, up from its prior estimate of $3.23 to $3.33. Analysts, on average, were expecting earnings of $3.33 a share. Shares slipped 1.7%.

Shares of Chesapeake Energy ( CHK) jumped 9.4% following good second-quarter results.

Shares of Tesoro ( TSO) gained 5% after its competitor Chevron ( CVX) said early Tuesday a fire that struck its large refinery in Richmond, Calif., was contained, but not yet extinguished.

The fire hit the sole crude unit at the 245,000 barrel per day plant, which accounts for one-eighth of California state's refining capacity, according to Reuters. Chevron shares finished up 0.6%.


-- Written by Andrea Tse in New York.

>To contact the writer of this article, click here: Andrea Tse.

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