U.S. stocks closed higher on Tuesday on optimism about the development of coronavirus vaccines and a revival of business activity, but the S&P 500 failed to hold above the key psychological level of 3,000 points.

Stocks pared gains late in the session, after Bloomberg News reported the Trump administration was weighing a range of sanctions on Chinese officials, businesses and financial institutions, reinforcing comments earlier in the day from White House adviser Larry Kudlow.

Kudlow said President Donald Trump was "so miffed with China on virus and other matters that the trade deal is not as important to him as it once was."

The benchmark S&P 500 had crossed 3,000 for the first time since March 5 before dropping back late in the session.

The S&P 500 has risen as much as 37.9% from its March 23 low due to central bank and government stimulus at a time when the U.S. economy is seeing its biggest job losses since the Great Depression of the 1930s. It closed 11.7% below its Feb. 19 record high.

On Monday, California, which has had one of the country's most restrictive shutdowns, said it would allow retail businesses to offer in-store shopping and places of worship to reopen.

On top of vaccine-related news, Shawn Snyder, head of investment strategy at Citi Personal Wealth Management, pointed to better-than-expected home sales data and comments from JPMorgan Chase CEO Jamie Dimon.

"When you add the news all together everyone's getting a boost," Snyder said.

Data showed U.S. consumer confidence nudged up in May, adding to hopes that the worst of the economic impact of the shutdown is in the past.

The Dow Jones Industrial Average rose 529.95 points, or 2.17%, to 24,995.11, the S&P 500 gained 36.32 points, or 1.23%, to 2,991.77, and the Nasdaq Composite added 15.63 points, or 0.17%, to 9,340.22.

While all 11 S&P sector indexes were higher for much of the day, the technology and healthcare sectors ended slightly lower. Still, sectors such as financials and industrials charged ahead with gains of 5% and 4%, respectively.

A comment from JPMorgan's Dimon suggesting that the bank may not need to increase its reserves in the second half of the year was a boost for the financial sector as well as the broader market, according to Citi's Snyder.

JPMorgan shares closed up 7%, making it the biggest boost for the financial sector.

U.S. biotech group Novavax Inc closed up 4.5% as it joined the race to test coronavirus vaccine candidates on humans and enrolled its first participants. Merck & Co Inc ended up 1.2% after it announced plans to develop two separate vaccines.

While macroeconomic data was pointing at a deep recession, Citi's Snyder was focused on the recovery. But he questioned how much further the market would rise with the U.S. presidential election in November and simmering U.S.-China tensions.

"The returns from here will be harder to come by," he said.

Beaten-down travel-related stocks climbed with the S&P 1500 airlines stocks index rising 13% and cruise operators including Carnival Corp, which closed up 12.6%.

The New York Stock Exchange on Tuesday partially reopened its trading floors at the iconic 11 Wall Street building, which had been closed since March 23.

Advancing issues outnumbered declining ones on the NYSE by a 4.91-to-1 ratio; on Nasdaq, a 2.35-to-1 ratio favored advancers.

The S&P 500 posted 13 new 52-week highs and no new lows; the Nasdaq Composite recorded 104 new highs and nine new lows.

On U.S. exchanges 12.11 billion shares changed hands compared with the 11.26 billion average for the last 20 sessions.

GLOBAL MARKETS

Global equities and oil rose on Tuesday as China's promise of more stimulus and prospects of a world economic recovery cheered investors, who set aside concerns about tense rhetoric between Washington and Beijing.

The euro got a boost from a weaker dollar as rising optimism about the easing of coronavirus pandemic lockdowns supported riskier currencies and sent safe-haven gold lower.

Crude prices rose on growing confidence that producers are following through on commitments to cut supplies and as fuel demand has picked up.

U.S. stocks pared gains after President Donald Trump's economic adviser, Larry Kudlow, said China was making "a big mistake" with planned national security legislation on Hong Kong and pledged Washington would pay expenses of U.S. firms that wanted to shift operations from the city or China.

White House spokeswoman Kayleigh McEnany said Trump finds it hard to see "how Hong Kong can remain a financial hub if China takes over."

MSCI's gauge of stock performance in 49 countries rose more than 2% at one point, as did its emerging markets index. The S&P 500 climbed past the 3,000 mark for the first time since March 5, up 37% from March lows but still off about 11% from its all-time high in February, and it closed under 3,000.

Europe was powered by a 6.9% surge in travel and leisure stocks. On Wall Street, shares of American Airlines and United Airlines Holdings rose more than 15% and U.S.-listed cruise ship operators jumped about the same.

The major boost for investor sentiment is the reopening of the U.S. and global economies, said Jason Benowitz, senior portfolio manager at the Roosevelt Investment Group Inc in New York.

"Reports of economic activity, while still terrible compared to three months ago, have begun to get less bad as compared to the prior month," Benowitz said.

Spain said quarantine-free tourism would resume next month and Germany edged toward a 9 billion-euro bailout of airline Lufthansa.

Spain's Melia Hotels International SA rose 13.6% and France's Accor SA 11.3%, the biggest percentage gainers on the Spanish and French bourses. Norwegian Cruise Line Holdings Ltd and Royal Caribbean Cruises Ltd were among the top four percentage gainers on the S&P 500.

But the travel industry remained vulnerable. Latin America's largest airline, LATAM Airlines Group, and its affiliates in Chile, Peru, Colombia and Ecuador filed for bankruptcy protection in the United States.

MSCI's all-country world index <.MIWD00000PUS gained 1.6%, and the pan-European STOXX 600 index 1.1%.

Crude prices were buoyed by Russia's saying its oil output had dropped close to its target of 8.5 million barrels per day for May and June under the supply deal reached by major producers.

Brent futures rose 64 cents to settle at $36.17 a barrel, while U.S. crude settled up $1.10 at $34.35.

China's central bank said it would keep pushing to lower interest rates on loans, helping offset tensions between Beijing and Washington over trade, the coronavirus and Hong Kong.

MSCI's broadest index of Asia-Pacific shares outside Japan advanced 1.7% overnight, with South Korea up 1.75% and Chinese blue chips 1.1% higher.

The dollar index fell 0.774%, with the euro up 0.81% to $1.0987. The Japanese yen strengthened 0.20% versus the greenback at 107.50 per dollar.

Benchmark U.S. 10-year Treasury notes rose 3.4 basis points to yield 0.6932%.

U.S. gold futures settled down 1.7% at $1,705.60 an ounce. Spot gold dropped 1.1% to $1,711.12.