Health insurers powered the gains a day after the government released revised reimbursement rates for Medicare Advantage plans. The new numbers suggest that funding cuts will be less severe than analysts and companies had feared.
The Dow closed up 89.16 points, or 0.6 percent, at 14,662.01. It had risen as high as 14,684 in the late morning.
The Dow broke through an all-time record on March 5. It has risen steadily since then, routinely setting new trading highs.
The Standard & Poor's 500 index rose 8.08 points, or 0.5 percent, to 1,570.25. It rose to within two points of its trading high of 1,576 reached on Oct. 11, 2007.
European markets closed sharply higher on the first trading day after a tense, four-day holiday weekend. Paris' CAC-40 rose 2 percent, London's FTSE 100 1.2 percent and Frankfurt's DAX 1.9 percent.
The gains in Europe markets boosted confidence among U.S. investors. While European markets were closed for four days for the Easter holiday, many traders feared that Cyprus' precarious financial situation would worsen. That concern also weighed on U.S. markets Monday, said Peter Tchir, who runs the hedge fund TF Market Advisors.
But no bad news materialized. Instead, Cyprus' international lenders agreed to extend until 2018 its deadline for meeting key budget targets. European markets opened higher and rose strongly after U.S. trading began Tuesday. The gains fed a virtuous cycle that sent stocks higher on both sides of the Atlantic, Tchir said.
"Everyone was waiting to see if Europe had problems from Cyprus," he said. "Instead, we got the all-clear signal."
The trading day began with solid March sales reports from U.S. automakers. Chrysler said it sold more cars and trucks than in any month since the Great Recession began, an increase of 5 percent. Sales for General Motors and Ford rose 6 percent.
Orders to U.S. factories rose 3 percent in February, the best gain in five months, the government said after trading began. The increase was driven by a surge in demand for commercial aircraft, an especially volatile category.
Health care stocks rose the most of the 10 sectors in the S&P 500 index, adding 1.4 percent. The sector is up 17.1 percent this year.
Traders were relieved about the insurers' prospects after Monday's news about Medicare Advantage rates. Preliminary data released in February had raised fears that companies offering the plans would be forced to cut benefits, increase customers' premiums or abandon some markets. This week's data suggest that may not be necessary.
UnitedHealth was the biggest gainer in the Dow. DaVita HealthCare Partners Inc. led the S&P 500 higher. Also among the S&P 500's top 15 gainers were Humana Inc., Aetna Inc. and Cigna Corp.
UnitedHealth rose $2.77, or 4.7 percent, to $61.74. DaVita rose $7.29, or 6.1 percent, to $127.20. Humana gained $4.09, or 5.5 percent, to $79.11. Aetna rose $1.92, or 3.7 percent, to $54.30. Cigna added $1.84, or 2.9 percent, to $64.75.
Airline stocks fell sharply after Delta Air Lines Inc. said a key measure of revenue was hurt last month by government spending cuts, a technical glitch and attempts to get passengers to pay more.
Delta fell $1.31, or 8.1 percent, to $14.94. United Continental Holdings Inc. lost $1.59, or 5.1 percent, to $29.38. US Airways Group Inc. fell 93 cents, or 5.6 percent, to $15.74. JetBlue Airways Corp. dropped 40 cents, or 5.9 percent, to $6.34.
The industry dragged the Dow Jones transportation average down 1.2 percent. The index fell even more on Monday, 1.5 percent, after U.S. manufacturing slowed more than economists forecast in March. The index, which includes airlines like Delta, United and freight companies FedEx and UPS, has gained 14.7 percent this year.
The manufacturing report was "much weaker than expected," according to Jim Russell, an investment director at US Bank. He said companies that are closely tied to the economic cycle "have really taken on some water because of what that implies."
For the second day in a row, small stocks underperformed the market. The Russell 2000 index of small-company stocks fell 4.49 points, or 0.5 percent, to 934.20. The Russell had risen more than large-company indexes in the first quarter, gaining 12 percent versus 11.3 percent for the Dow and 10 percent for the S&P.
The Nasdaq composite rose 15.69, or 0.5 percent, to 3,254.86.
Some other companies making big moves:
-- Hewlett-Packard plunged after a Goldman Sachs analyst downgraded the stock, predicting the company's earnings will be weak. Shares fell $1.21, or 5.2 percent, to $22.10.
-- Urban Outfitters climbed a day after the clothing and accessories company said sales at stores open at least a year have grown in the high single digits in the first two months of the fiscal quarter started Feb. 1. Sales at stores open at least a year is a key gauge of a retailer's health because it excludes results from stores recently opened or closed. The stock rose $1.46, or 3.8 percent, to $39.87.
-- Actavis Inc. rose after a U.S. court declared a rival's patent invalid, clearing the way for Actavis to sell a generic asthma inhaler. The stock added $4.22 or 4.6 percent, to $96.68.
Daniel Wagner can be reached at www.twitter.com/wagnerreports.