The S&P 500 logged another 14-month high on Tuesday as stocks rallied on a surge in existing home sales, which indicated more stabilization in housing and boosted optimism about the economic recovery.

Housing stocks led the way up with the Dow Jones U.S. home construction index <.DJUSHB> up 3.9 percent following data that showed U.S. existing home sales rose in November at the fastest pace since February 2007.

Shares of D.R. Horton Inc rose 3.8 percent to $11.15, while Toll Brothers Inc gained 4.5 percent to $19.21.

We definitely had a positive reaction off the housing numbers, said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati.

Any sign of stabilization in housing lends a big boost to investor sentiment. It was the fallout from that sector's downturn that recently drove the economy into its worst recession since the 1930s and propelled the U.S. unemployment rate above 10 percent to a 26-year high.

The housing numbers were very, very strong, Detrick added, and that's what we've been seeing for several months.

The Nasdaq hit a 15-month high, buoyed by technology bellwethers. International Business Machines Corp shot up 1 percent to $129.93 on the NYSE after the blue-chip company scored a 10-year outsourcing deal valued at $83 million. Among the Nasdaq's main advancers, Microsoft Corp was up 1 percent at $30.82.

The Dow Jones industrial average <.DJI> rose 50.79 points, or 0.49 percent, to end at 10,464.93. The Standard & Poor's 500 Index <.SPX> added 3.97 points, or 0.36 percent, to 1,118.02. The Nasdaq Composite Index <.IXIC> gained 15.01 points, or 0.67 percent, to close at 2,252.67.

MICRON UP LATE

After the closing bell, shares of Micron Technology rose 2.2 percent to $9.62 as the company reported its first quarterly profit in more than two years on improving demand and rising prices for memory chips.

During Tuesday's regular session, the CBOE Volatility Index <.VIX> or the VIX, Wall Street's favorite barometer of investor fear, fell below a key psychological level of 20 to its lowest level since August 2008. The VIX slid 4.6 percent to close at 19.54.

Earlier in the session, the S&P 500 <.SPX> hit a technical milestone, surging to an intraday high of 1,120.27. The index failed to hold that level, but it did reach a 14-month closing high.

Year-end window dressing -- where portfolio managers sell laggards and buy shares that have gained recently -- gave an extra boost to stocks that have led the rally.

Market technicians have said a breakout in the S&P 500 above the 1,120 level would signal more gains for the broader market and could help the S&P 500 take aim at the 1,200 level.

The S&P 500 has risen 65.3 percent since hitting a 12-year closing low on March 9. For the year, the S&P 500 is up 23.8 percent.

Apple Inc , which has surged 134.8 percent this year, was up 1.1 percent at $200.36, not far below its 52-week high set on October 21.

BOEING TAKES FLIGHT

Boeing Co gave the Dow one of its biggest lifts, rising 1.5 percent to $55.10 after it bought a stake in a U.S. plant that assembles the fuselage for its 787 Dreamliner.

A separate economic report that gave the final estimate of gross domestic product showed that GDP grew at an annual rate of 2.2 percent in the third quarter -- below the forecast for a gain of 2.8 percent.

Volume was light on the New York Stock Exchange, with only about 955.5 million shares changing hands, below last year's estimated daily average of 1.49 billion. On the Nasdaq, about 1.75 billion shares traded, below last year's daily average of 2.28 billion.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of nearly 2 to 1, while on the Nasdaq, eight stocks rose for every five that fell.

(Reporting by Leah Schnurr; Editing by Jan Paschal)