By Anora Mahmudova, MarketWatch

NEW YORK (MarketWatch) -- The U.S. stock market rose on Tuesday, building on the previous day's rally, as investors took comfort that Russia's annexation of Crimea has not escalated into military action.

The S&P 500 (SPX) added 10 points, or 0.6%, to 1,869.56, holding onto modest gains this year.

The Dow Jones Industrial Average (DJI) rose 86.26 points, or 0.5%, to 16,333.40, with Microsoft Corp leading the gains.

The Nasdaq Composite (RIXF) gained 41.06 points, or 1%, to 4,321.20.

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Russia's President Vladimir Putin on Tuesday signed a treaty to annex Crimea after an overwhelming majority of its citizens on Sunday voted to leave Ukraine. In his prepared remarks, Putin also said he did not seek to partition Ukraine. For now.

As the events in Russia and Ukraine stole the show, reaction to a pair of economic reports that were in line with expectations was muted. Investors shifted their attention to the Federal Reserve's two-day policy-setting meeting set to begin on Tuesday.

"While countries engage in a rhetoric over the legality of Russia's move to annex Crimea, they also realize that it is difficult to impose too many sanctions without hurting their own interests," said Brad Sorensen, director of market and sector research at Schwab Center for Financial Research.

"Markets are relieved for now that there is not going to be a military action in the immediate future," he added.

In economic news, construction on new U.S. homes fell slightly in February, but in a sign that work will pick up as the weather warms, builders filed more permits to start new projects -- mainly on multi-dwelling units like condos and apartments. The previous months' number was revised higher. Also: Spotlight on the economy: Is housing construction about to warm up?

Ian Shepherdson, chief economist at Pantheon Macroeconomics wrote housing starts numbers 'could have been worse, but single-family permits numbers are worrying'.

"The not-so-good news is that all the increase in permits in February was in the volatile multi-family component, while single-family fell for the third straight month to their lowest level since Jan 13. The trend here is clearly downwards, and SF starts are even weaker," he wrote in a note.

Consumer prices in the U.S. rose slightly in February because of higher food and housing costs, but overall inflation remained quiet, according to the latest government figures.

The Fed will release a policy statement and updated economic forecasts on Wednesday afternoon. Chairwoman Yellen is due to hold a news conference after the meeting, the first to be led by her. Analysts expect the Fed will roll out a new low-rate pledge and further tapering of its monthly bond-buying program.

Among individual stocks, Hewlett-Packard (HPQ) jumped 3.7% after Barclays upgraded the stock to overweight from equal weight. Barclays analyst Ben Reitzes said H-P "could gain share for several quarters" in the low-end server business at the expense of Lenovo which has acquired IBM Corp.'s X86 server business.

GameStop Corp. (GME) shares dropped 4.2% after Wal-Mart Stores Inc. (WMT) said it would allow customers to hand in used videogames in exchange for gift cards, which can be used in its retail stores or online. The change in policy from Wal-Mart Stores could eat away at GameStop's dominance of the $2 billion used videogame market in the U.S.

Shares of FutureFuel Corp.(FF) rose 15% as the biofuels company late Monday reported a more-than-fourfold jump in profit. Hertz, Adobe, Oracle are stocks to watch Tuesday.

Coach Inc (COH) shares rose 1.5% after Barclays initiated coverage of the stock with 'equalweight' rating.

Shares of Hertz Global Holdings, Inc. (HTZ) gained 1.4% after the auto-rental group posted fourth-quarter adjusted earnings. It also said it received board approval to proceed with a spinoff of its equipment-rental business that is expected to close by early next year.

Oracle Corp. (ORCL) is scheduled to report fiscal third-quarter results after the bell, with analysts looking for earnings of 70 cents a share on sales of $9.36 billion. Shares were up 0.9%.

In other markets, gold (GCJ4) fell on Tuesday in volatile trading as investors looked ahead to the Fed meeting. Gold lost ground Monday as investors put money back into stocks. The dollar fell sharply against the Japanese yen (USDJPY), also reversing some of the previous day's moves. Oil prices (CLJ4) were marginally higher.

European stocks gained ground rising 0.6%. The Nikkei 225 index largely tracked Wall Street gains from Monday, with that index gaining close to 1%. The Shanghai Composite Index was flat.

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