By Rodrigo Campos

American Express led the Dow higher, gaining nearly 9

percent after posting results late Monday that surpassed analysts' views. Financials were by far the biggest boost to the broader market, sending the S&P financials index <.GSPF> up 2.9 percent.

Analysts said investors had begun to discount the negative news amid optimism about efforts to stabilize the economy.

"The further we get through earnings season, the better off we're going to be," said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston.

U.S. Steel Corp added 5.8 percent to $31.18 after the steelmaker's profit jumped. The S&P materials sector <.GSPM> edged up 0.2 percent.

Chip maker Texas Instruments reported a quarterly profit that fell less than feared and announced a 12 percent cut in jobs. Its stock rose nearly 3 percent to $15.21, while the Philadelphia Semiconductor Index <.SOXX> rose 3 percent and was on track for its longest winning streak in 2009.

The Dow Jones industrial average <.DJI> gained 39.59 points, or 0.49 percent, to 8,155.62. The Standard & Poor's 500 Index <.SPX> rose 6.87 points, or 0.82 percent, to 843.44. The Nasdaq Composite Index <.IXIC> added 13.74 points, or 0.92 percent, to 1,503.20.

American Express shares rose 8.6 percent to $16.50. Shares of Citigroup jumped 7.5 percent to $3.58 after its chief executive reiterated his plan to cut costs.

On the Nasdaq, shares of BlackBerry maker Research In Motion contributed the greatest boost, up about 6 percent at $53.72.

But even with the advance, investors had to contend with more signs of a weakening consumer. The Conference Board reported that its gauge of U.S. consumer confidence fell to a record low in January.

Additionally, home prices dropped at a record pace in November according to data from an S&P/Case-Shiller.

The S&P retail index <.RLX> fell 1.7 percent, while the Dow Jones U.S. home construction index <.DJUSHB> dropped 3 percent.

The largest drag on the Dow came from Verizon Communications Inc , after the No. 2 U.S. phone company reported fewer-than-expected wireless subscribers for the fourth quarter and warned that pension costs would hurt 2009 earnings. Verizon was down 3.4 percent at $29.95, while rival AT&T fell 2.4 percent to $26.20.

The Federal Reserve's monetary policy-setting Federal Open Market Committee begins a two-day meeting on Tuesday. Investors will be watching for signals of any nonconventional methods of fighting the credit crisis the Fed might employ.

Former Goldman Sachs chief economist William Dudley will be the newest member in the FOMC meeting, following his appointment to head the New York Fed in place of Timothy Geithner, who was sworn in as Treasury Secretary on Monday. Dudley has played a central role in the Fed's response to the financial crisis.

(Editing by Jan Paschal)