NEW YORK (Reuters) - U.S. stocks rose by the most in nearly two weeks on Tuesday after data showed business investment and the housing recovery continued apace, reassuring investors worried about the Federal Reserve's plans to reduce its massive monetary stimulus.

Analysts said the gains were fueled by a mix of buyers: hedge funds and both small and wealthy retail clients attracted by the market's recent drop. Position trimming by institutions due to recent volatility pulled the market back from its highs in the final minutes of trading.

The gains, led largely by financial stocks, came even as the latest drop in bond prices indicated higher interest rates. A lightly bid two-year government debt auction disappointed bond traders who were looking for bargain-minded investors to buy Treasuries hard hit in the recent market selloff.

"I think investors have kind of come to the conclusion that 'OK, we've made a kneejerk reaction to what the Fed has said and now we've taken some deep breaths and we can reassess,'" said Mike Binger, senior portfolio manager at Gradient Investments LLC in Minneapolis, Minnesota.

"This little correction has given people a chance to get back into the market who haven't been in and haven't participated at all this year."

The S&P 500's gain of just under 1 percent was the biggest since June 13 and was the market's most broad-based advance since Federal Reserve Chairman Ben Bernanke sparked a global rout in financial markets by laying out a roadmap for the end of $85 billion a month in bond purchases.

The declines have been broad and have come on heavy volume, indicating selling by investors with large positions. Even with Tuesday's gain, the index remains down 4.9 percent from its all-time closing high of 1,669.16 reached on May 21.

Data on durable goods orders, sales of new homes and consumer confidence all topped analysts' expectations. The April Case/Shiller report on home prices also exceeded forecasts. Should this run of strong economic figures continue, it will mollify those worried about lack of Fed support.

Housing stocks were among the strongest of the day after the data and also after Lennar Corp posted strong results, pointing to a solid housing recovery. The stock rose 0.7 percent to $35.23 while the PHLX housing sector index climbed 1.4 percent.

Wells Fargo , the biggest U.S. mortgage lender, rose 1.25 percent to $40.30. Citigroup led the gains by large-cap banks with a 3.4 percent rise.

Volume was again above average, with 6.73 billion shares traded on U.S. exchanges, but dropped closer to healthy levels after several busy days of selling.

All 10 industry sectors on the S&P 500 ended up, led by gains in growth-sensitive financials and energy shares. More than three-fourths of stocks traded on the New York Stock Exchange advanced.

The Dow Jones industrial average rose 100.75 points or 0.69 percent, to 14,760.31, the S&P 500 gained 14.94 points or 0.95 percent, to 1,588.03 and the Nasdaq Composite added 27.13 points or 0.82 percent, to 3,347.89.

While the S&P is up 11.2 percent in 2013, the recent trend has been negative, with the benchmark index dropping below both its 14-day and 50-day moving averages, seen as signs of near-term market direction. The S&P is down about 2.7 percent in June.

The index on Monday closed at its lowest level since April 22 after China's central bank said the country's banks need to do a better job of managing their cash. On Tuesday, the People's Bank of China said it would not press banks too hard in its efforts to curb easy credit and prevent a possible banking crisis.

Carnival Corp jumped 5 percent to $34.89 after the cruise ship operator named a new chief executive and affirmed its full-year profit outlook.

On the downside, Walgreen Co slumped 5.9 percent to $45.22 as the worst performer on the S&P 500 after reporting weaker-than-expected results, citing slow front-end sales and a challenging economy.

Solarcity Corp gained 9.2 percent to $36.01 after Walmart announced 10 new solar institutions in Maryland.

(Reporting By Alison Griswold; Editing by Kenneth Barry)

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