By Kate Gibson, MarketWatch NEW YORK (MarketWatch) -- U.S. stocks advanced Tuesday, propelling the Dow Jones Industrial Average to its highest close since late 2007, after a report indicated U.S. manufacturing expanded in April, offsetting concern about the economic recovery. "It certainly suggests that things may not be rolling over as badly as one might have thought; the bears need to take that seriously," Bruce McCain, chief investment strategist at Key Private Bank, said of the manufacturing gauge from the Institute for Supply Management. The group's manufacturing index rose to 54.8% last month from 53.4% in March. Economists surveyed by MarketWatch had forecast the index would fall to 53.3%. After climbing as much as 125 points, the Dow industrials (DJI) finished at 13,279.32, up 65.69 points, or 0.5%. The finish marked its highest close since December 2007. The S&P 500 (SPX) climbed 7.91 points, or 0.6%, to 1,405.82, with energy the strongest performer of its 10 industry sectors. Sears Holding Corp. (SHLD) rallied 14% after the retailer said it expects to report a first-quarter operating profit later this month. The Nasdaq Composite (RIXF) rose 4.08 points, or 0.1%, to 3,050.44. For every stock falling nearly two gained on the New York Stock Exchange, where 771 million shares traded; composite volume neared 3.8 billion. "There is relief that the [ISM] number didn't show a decline, which would be further evidence the economy is slowing," said Mark Luschini, chief investment strategist at Janney Montgomery Scott. Luschini also found reason for cheer in the data's underlying components, with the ISM's new-orders measure rising to 58.2% from 54.5%, and its employment gauge advancing to 57.3% from 56.1% in March. "All fall into the mixer of steady if unspectacular activity across the manufacturing sector, which is good, but still only 12% of our economy," he said. Tuesday's gains came after the S&P 500 pulled the plug on a four-month rally in April.