Stocks rallied on Tuesday, with banks and technology shares leading the way higher as stronger-than-expected retail sales and signs of easing in the euro zone were signals the global economy was gaining momentum.

The Federal Reserve said that recent strains on financial markets were easing, and the economy was expanding moderately, though growth still faced significant downside risks. The assessment of the economy's expansion was unchanged from the Fed's January statement.

Equities rose slightly after the comments, with the Dow and S&P briefly advancing 1 percent. Recently, Wall Street was unnerved after Fed Chairman Ben Bernanke stopped short of giving a strong signal of more economic stimulus during congressional testimony.

Data in the United States once again indicated a slowly improving domestic economy, as retail sales recorded their largest gain in five months in February despite rising gasoline prices.

Spending is picking up, with consumers showing a willingness and ability to spend, which suggests that retail stocks will really be coming into the market, said David Joy, chief market strategist at Ameriprise Financial in Boston.

Joy, who helps oversee $571 billion in assets under management, added that the Fed was being overly bearish.

The Dow Jones industrial average <.DJI> was up 104.08 points, or 0.80 percent, at 13,063.74. The Standard & Poor's 500 Index <.SPX> was up 11.10 points, or 0.81 percent, at 1,382.19. The Nasdaq Composite Index <.IXIC> was up 29.63 points, or 0.99 percent, at 3,013.29.

Underscoring the upbeat sentiment, the CBOE Volatility Index or VIX, <.VIX> hovered near levels not seen since mid-2007. Its 14-day moving average is at its lowest since last June.

The S&P 500 index reached 1,385.18, its highest intraday level since June 2008, and the Nasdaq Composite hit 3,019.12, its highest mark since December 2000.

The PHLX housing sector index <.HGX> hit its highest level since May 2010, and a banking sector index <.BKX> was at a seven-month high.

Euro-zone finance ministers gave final approval to a second bailout for Greece, and a German index of analysts' and investors' sentiment rose much more than expected in March.

The European Union, the United States and Japan formally asked the World Trade Organization to settle a dispute with China over restrictions on exports of raw materials, including rare earth elements critical to electronics makers.

Beijing said the export curbs were motivated by environmental concerns, adding that it would defend itself.

Shares of Molycorp , a rare earth oxide producer that owns a rare earth project outside of China, shot up 3.8 percent to $31.02. The company's stock has seen daily moves of at least 4 percent more than a dozen times this year.

Despite the upbeat retail data, shares of Urban Outfitters Inc dropped 5.9 percent to $27.76 a day after it said it expects margins to continue to be pressured.

(Reporting by Ryan Vlastelica; Editing by Jan Paschal)