The S&P/TSX composite index jumped 252.19 points to 11,848.75, as traders also welcomed a strong reading on American factory orders.
The TSX Venture Exchange gained 34.5 points to 1,225.49.
Energy stocks were a major advancer as oil ran up almost US$4 a barrel.
The commodity-sensitive Canadian dollar rose 0.55 of a cent to 98.77 cents US.
New York markets closed higher after a shortened session. U.S. markets will be closed Wednesday for the U.S. Independence Day holiday.
The U.S. Commerce Department said Tuesday that factory orders increased 0.7 per cent in May after two consecutive months of declines. Core capital goods, such as machinery and computers, rose 2.1 per cent. That’s better than the 1.6 per cent estimated in a preliminary report a week ago and is a good measure of companies’ plans to invest.
However, manufacturing has slowed so far this year, hurt by declining consumer and business confidence and weaker global demand.
The Dow Jones industrials closed up 72.43 points to 12,943.82, the Nasdaq composite index gained 24.85 points to 2,976.08 and the S&P 500 index was up 8.51 points to 1,374.02.
Some analysts expect the European Central Bank to cut lending rates and the Bank of England to boost money in circulation at meetings later this week.
"The ECB will likely cut 25 basis points. I think that seems to be what is priced into the markets," said Sadiq Adatia, chief investment officer at Sun Life Global Investment.
"And I think that’s a good move, it just helps signal the markets that things are going to be a little bit better and let’s face it, they need some positive things."
There are also hopes that Japan and China will announce new stimulus measures.
Also helping buying sentiment were strong data on U.S. vehicle sales last month.
Automakers reported big gains over June of last year. Chrysler posted its best June in five years. Sales surged at Volkswagen, which is on track for its best year in the U.S. since 1973.
The results allayed fears that growth would stall after a strong start to 2012. Falling gas prices, cheaper loans and new models like the Ford Escape and Dodge Dart have attracted buyers. A revived housing market has lifted sales of pickups.
Markets also continued to find lift after Europe's leaders appeared at the end of last week to have finally come up with plans that show they are serious about restoring confidence in the eurozone.
Among other things, the plan allows European bailout funds to pump money directly into troubled European banks, rather than make loans to governments to bail out the banks. The move rescues the banks without putting strapped countries deeper in debt.
Hopes for central bank action helped push the August crude contract on the New York Mercantile Exchange up $3.91 to US$87.66 a barrel.
But the rise also reflected worries about Iran after the country staged further missile tests Monday, a day after U.S. and European embargoes of Iranian oil took effect. Iran also again threatened to block a critical Persian Gulf shipping route in response to the embargo.
The TSX energy sector closed up 3.28 per cent. Suncor Energy (TSX:SU) was up $1.27 at C$30.71 while Cenovus Energy (TSX:CVE) ran ahead $1.60 to $33.97.
The base metals sector ran up 4.15 per cent as copper futures jumped seven cents to US$3.54 a pound. Teck Resources (TSX:TCK.B) rose $1.24 to $32.77 while First Quantum Minerals (TSX:FM) was up $1.08 at $19.08.
Ivanhoe Mines Ltd. (TSX:IVN) and Aluminum Corp. of China (Chalco) say they've agreed to extend by 30 days the time for Chalco to make a proportional takeover bid for up to 60 per cent of SouthGobi Resources. The offer of $8.48 per share is subject to Canadian and Chinese regulatory approvals as well as Chalco shareholder approval. Ivanhoe stock was up 19 cents at $10.23.
Railway stocks advanced alongside mining stocks with Canadian National Railways (TSX:CNR) up 60 cents to $86.70 and Canadian Pacific Railway (TSX:CP) climbing $1.88 to $76.60.
The gold sector racked up a gain of over three per cent as bullion rose $24.10 to US$1,621.80 an ounce. Barrick Gold Corp. (TSX:ABX) climbed $1.15 to C$39.50 and Goldcorp Inc. (TSX:G) moved ahead $1.57 to $39.90.
Blue chips also supported the TSX with the financial sector ahead 1.26 per cent. Royal Bank (TSX:RY) climbed 93 cents to $53.09 and Manulife Financial (TSX:MFC) improved by 27 cents to $11.36.
In corporate news, Research In Motion (TSX:RIM) chief executive Thorsten Heins and other executives were on the defensive in interviews Tuesday, saying the company will get past the current challenges that have resulted in layoffs of about 5,000 people and faltering sales of its BlackBerry smartphones.
Heins made the comment in a CBC Radio interview, part of the company's efforts to convince customers and investors that it can survive the US$518-million quarterly loss announced last week.
Meanwhile, Barclays Capital has cut its rating on RIM stock to underweight from equalweight and RIM shares fell 10 cents to $7.44.
Elsewhere, the chief executive of U.K. bank Barclays, Bob Diamond, quit his job Tuesday, the latest scalp in a financial markets scandal that has also seen the bank's chairman announce his intention to resign.
Barclays' management has come under fire since the bank was fined $453 million last week by U.S. and British regulators for submitting false reports on interbank borrowing rates between 2005 and 2009. Much of that activity originated from traders in Barclays Capital, the investment banking division which Diamond headed at the time.