By Peter McKay

Stocks jumped on Tuesday, aided by improving U.S. economic data and rising confidence in Europe's efforts to help heavily indebted Greece.

The Dow Jones Industrial Average's (DJI) gains mounted steadily throughout the session, and the blue-chip indicator ended with a 169.67-point gain, up 1.7%, at 10,268.81, within 11 points of its daily high.

The Dow's strongest component by far was Bank of America Corp. (BAC), whose shares surged 4.9% after it reported "significant gains" in the number of modified mortgages it handles through the government's Home Affordable Modification Program. Also, it reported better payment performance on its credit card loans last month.

BofA's share gains helped to boost the broader financial sector, as did a better-than-expected quarterly earnings report from Barclays Plc (BCS). The British banking giant's American depositary shares soared 13.7%.

In economic news, the Federal Reserve Bank of New York's Empire Manufacturing Survey showed conditions for New York manufacturers improved sharply in February. Its business conditions index rose to 24.91 this month, from 15.92 in January. Economists had expected a reading of 16.0 in February.

The National Association of Home Builders said its monthly index of U.S. builder confidence grew in February, recovering form a seven-month low. However, the measure is still at levels signaling worry in the housing sector.

Greek fears ease

Tuesday's focus on the U.S. shifted investors' attention away from Europe, where meetings over the past two days provided more visibility regarding the European Union's coordination to stabilize Greece. Traders have become content that the EU will back up any of its members before their woes spread too widely through the world economy.

"Last week, I think we saw a fear trade mixed with a greed trade, with people not wanting to be left out if they resolved the Greece situation," said strategist Jim Paulsen of Wells Capital Management. "Now, I think we're seeing that greed trade take over a little more clearly. People are looking at what else is out there if Greece is out of the way, and they see a lot to like."

The Nasdaq Composite Index (RIXF) rose 1.4% on Tuesday. The S&P 500 (SPX) climbed 1.8%, helped by gains in all its sectors. The strongest were energy, which rose 2.7% due to a rally in oil prices; financials, up 2.5%; and materials, up 2.5%, thanks to a weakening dollar.

But some traders cautioned that Tuesday's gains, though impressive, weren't accompanied by the sort of robust volume that tends to confirm widespread confidence in stocks to fuel continued gains. Composite volume in New York Stock Exchange-listed companies hit 4.2 billion shares, below the daily average around 5 billion for 2010 so far.

"Until I see a rally with some authority, by which I mean volume, I think we're in a trading range," said Joe Donohue, chief executive of Desert Shores Capital. "With the increased volatility, you have to be hedged. Otherwise, you can really get killed on some of the gaps that you see when there are headlines."

Dollar tumble

The dollar fell as investors took on risk. That helped the prices of raw materials, pushing the broad Dow Jones-UBS Commodity Index up 2.5%. April gold ended $29.80 an ounce higher at $1,119.80 an ounce. and

The dollar's slide and renewed tension over Iran's nuclear ambitions boosted crude-oil futures. Futures rose almost $3 to top $77 a barrel.

Among stocks to watch, Merck & Co. (MRK) shares gained 2% after the company's fourth-quarter profit and sales rose sharply on its recent takeover of Schering-Plough.

Terra Industries . (TRA) jumped 22.4% after the U.S. fertilizer producer agreed to be acquired by Norway's Yara International (YARIY) in a $4.1 billion cash deal.

Treasurys firmed. The 10-year note climbed 8/32 to yield 3.665%.