S&P hits 1,400 on hope for central bank action

U.S. stocks rose for a third day on Tuesday, with the S&P 500 above 1,400 for the first time since early May, bolstered by expectations the European Central Bank will act soon to contain the bloc's credit crisis.

Spanish benchmark 10-year yields ticked down 5 basis points but were still near the unsustainable 7 percent level, underscoring the cautious tone in a market that has been previously disappointed by lack of coordination among euro zone officials.

Investors are also betting a larger-than-expected fall in German industrial orders in June will underscore the importance of quick action from the ECB.

The softening data "is going to force the ECB to take action and is probably going to mean more Fed stimulus," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

Despite worries over European and U.S. economies, the S&P 500 index is up more than 11 percent so far this year. Yield-hungry investors have kept buying stocks as U.S. and German government bond prices soar and yields hit historic lows.

Even as Dallas Federal Reserve president Richard Fisher told Reuters on Monday new steps by the Fed to stimulate the economy so close to a presidential election would be a mistake, Boston Fed president Eric Rosengren said in a New York Times interview the Fed should expand its holdings of mortgage bonds and Treasury securities until it is satisfied with the health of the economy.

"Feds are outlining a plan that they are leaning towards more stimulus," said Rockwell's Cardillo. "When you have Fed members openly say it, it is a good, educated guess that that is the road map they are laying out."

Equity markets have rallied since Friday on hopes the ECB will start buying Italian and Spanish debt in an effort to stabilize the bloc's credit crisis and protect the euro, even as no details on the bank's course of action have been made public.

A group of investors rescued Knight Capital Group in a $400 million deal that kept the market maker in business, all but wiping out existing shareholders. Knight shares were up 5.2 percent at $3.23, down 73 percent year-to-date.

The Dow Jones industrial average rose 67.70 points, or 0.52 percent, to 13,185.21. The S&P 500 Index gained 8.60 points, or 0.62 percent, to 1,402.83. The Nasdaq Composite added 19.51 points, or 0.65 percent, to 3,009.42.

European stock markets rose 0.4 percent despite pressure from bank stocks. Standard Chartered tumbled as much as 25.7 percent in London after New York's top bank regulator threatened to remove the British lender's state banking license for allegedly hiding billions of dollars worth of transactions linked to Iran.

Pfizer and Johnson & Johnson scrapped further studies of an anticipated experimental drug for Alzheimer's disease after it failed in a second trial. U.S.-traded shares of their partner Elan Corp dropped 10.2 percent to $10.10. Pfizer shares fell 1.5 percent to $23.29 and J&J edged 0.4 percent lower to $68.57.