By Anora Mahmudova and Barbara Kollmeyer, MarketWatch Dow scores 32nd record close of 2014

NEW YORK (MarketWatch) -- U.S. stocks closed higher on Tuesday, led by energy stocks as they shrugged off a decline in crude oil futures to rally back from their prior-day drubbing.

Sentiment was buoyed by news of two big M&A deals. Japan's Otsuka Pharmaceuticals announced it will buy California-based Avanir Pharmaceuticals(AVNR) in a deal valued at $3.5 billion. The news sent Avanir shares up 12.8%.

Cypress Semiconductor Corp.(CY) and Spansion Inc. (CODE) agreed to merge in a deal valued at $1.6 billion, pushing Spansion shares up 21.9% and Cypress Semi shares up 14.3%.

The S&P 500 and Dow Jones Industrial Average scored their best one-day percentage gains in about a month, while the blue-chip index recorded its 32nd record close this year.

The Dow Jones Industrials Average (DJI) rose 102.75 points, or 0.6%, to 17,879.55.

The S&P 500 (SPX) gained 13.11 points, or 0.6%, to 2,066.55, with the health-care sector stocks joining energy to lead gains. Financials sector stocks also rallied, while telecoms, the only laggard on Tuesday, sold off. It was the best gain for the benchmark index since Oct 31.

The Nasdaq Composite (RIXF) ended the day up 28.46 points, or 0.6%, to 4,755.81, while Russell 2000 (RUT) turned positive for the year again after gaining 13 points, or 1.1% to 1,167.08.

November car and light truck sales were second-highest in eight years, according to figures from Autodata. Sales rose to a seasonally adjusted annual rate of 17.2 million, up from 16.5 million in October and the best level since August. Shares in General Motors Co.(GM.XX) and Ford Motor Co.(F) rose 1% and 0.8% respectively.

In economic news, construction spending data, released Tuesday morning, were up by 1.1% in October to a seasonally adjusted annual rate of $971 million, much higher than expected by economists polled by MarketWatch.

Stanley Fisher, vice chairman of the Federal Reserve, speaking at The Wall Street Journal CEO Council annual meeting in Washington, D.C., said continued labor market improvement and "some signs" that inflation is beginning to stir would be enough for the U.S. central bank to start to raise interest rates. If inflation continues to move lower, the Fed will have to take that into account, Fischer said.

Commodities volatile: Oil and precious metals gave up gains posted in the prior session. After rising more than 4% on Monday, January crude prices(CLF5) ended down more than 2%. Opinion: OPEC cannot outlast the U.S. on oil prices

Gold prices also gave back some of Monday's rally, with February futures(GCG5) off 1.6% and the precious metal falling below $1,200 an ounce level. What silver's biggest move in two years means

Investment banks continued to roll out their predictions for 2015. Citigroup is expecting the S&P 500 to return 8.5% by the end of 2015, and expects Japan and emerging-market stocks to outperform. That prediction is in line with that of Dan Greenhaus, strategist at BTIG, who said the main reason for his own muted expectations is that the first rate hike by the Federal Reserve -- expected next year -- will likely weigh on stocks. Fed to stay aggressive in 2015 as it battles 'lowflation'

Stocks in focus:Biogen Idec Inc. (BIIB) jumped 6.4% after the biotech company said it will move directly to Phase III from Phase I testing for an Alzheimer's treatment after the drug had a significant effect on cognition among patients included in the initial study.

TripAdvisor Inc. (TRIP) was the biggest S&P 500 gainer, adding 7.9%. The stock has gained in five out of the past six sessions.

Shares of Royal Caribbean Cruises Ltd.(RCL) jumped 6.2% after the stock was added to the S&P 500.

Overseas markets: The FTSE 100 index snapped a four-day losing streak, adding 1.3% as oil and mining stocks rebounded from Monday's selloff. Energy stocks also fueled gains for Europe , and there was strength across Asia. The Shanghai Composite rallied 3%, led by brokerages and banks. The People's Bank of China held back from draining funds from the banking system on Tuesday, which analysts said has triggered speculation that a cut in reserve requirements could come soon.

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