Stocks Rally on Fed Stimulus Hopes

The benchmark 10-year Treasury fell 12/32, raising the yield to 1.620%, while the dollar was down 0.66%, according to the dollar index.

August crude oil futures settled up 80 cents at $84.07 a barrel. August gold futures settled down $3.80 at $1,623.20 an ounce.

The Commerce Department reported Tuesday that housing starts fell 4.8% to a seasonally adjusted annual rate of 708,000 in May, from an upwardly revised April estimate of 744,000. The 744,000 figure was the best data on this indicator dating back to 2007.

Economists surveyed by Thomson Reuters had expected a 720,000 annual pace for May.

Building permits rose 7.9% to a seasonally adjusted annual rate of 780,000 from an upwardly revised 723,000. Economists had projected an annual rate of 728,000 for May.

Permits, which lead starts, are now at their highest level since September 2008.

"Starts are set, therefore, to rise strongly over the next month or two," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "These numbers are consistent with the strength in the monthly homebuilder survey from the NAHB, which also points to serious gains in new home sales through the summer."

The National Association of Home Builders reported Monday that its Housing Market Index rose to 29 for June from a revised May reading of 28, reaching its highest since May 2007.

"We look in particular at the traffic component," David James, senior vice president and portfolio manager of the James Advantage Funds said of the index. "In five of last six months, we've seen readings there in the 20s. That usually means we're going to get stable home prices ahead."

In corporate news,

FedEx(FDX) beat fourth-quarter estimates but could not entirely shake the impact of declining package volumes from Asia. It guided toward lower-than-expected results for the current quarter with full-year earnings forecast to come in at the high end of estimates.

Shares close up 2.82% to $91.01.

Oracle(ORCL) released its fourth-quarter report early and soared past estimates as new software licenses surged 7% to $4 billion.