Greenspan's comments helped the market shake off earlier losses, which had followed news of a federal investigation into IBM's bookkeeping.

The Dow Jones industrial average closed up 25.14, or 0.3 percent, at 8,922.95, having gained 47.55 to reach its highest closing level since Nov. 27, when it stood at 8,931.68.

The market's broader gauges were also higher. The Nasdaq composite index rose 12.81, or 0.8 percent, to 1,603.56. The Standard & Poor's 500 index advanced 4.56, or 0.5 percent, to 971.56.

The gains were surprising given IBM's bad news and analysts' views that the market is due for some profit taking following weeks of rallies. All three of the major gauges have climbed higher in four of the past five weeks as companies reported better-than-expected first-quarter profits and economic news turned more positive.

Analysts credited today's gains to Greenspan, who spoke before top central bankers in Berlin, saying that he sees indications of a "fairly marked turnaround" in the U.S. economy, with May data suggesting it has "stabilized."

"That adds to the bullish sentiment. The undertone of the market remains extremely strong," said Peter Cardillo, president and chief strategist of Global Partner Securities Inc.

Among today's winners on Wall Street, Brocade Communications rose $1.22 to $7.26 after Merrill Lynch upgraded the networker to "buy" from "neutral."

Intel advanced 72 cents to $21.10 ahead of the mid-quarter update the chipmaker is slated to deliver Thursday.

School Specialty climbed $3.76 to $25.45 after the school supplies company reported a fourth-quarter loss that was a penny a share lower than Wall Street anticipated.

IBM was easily the Dow's biggest loser, dropping $3.51 to $83.82 after announcing Monday that the Securities and Exchange Commission is investigating how the company booked revenue in 2000 and 2001.

Still, analysts were heartened to see IBM fail to bring other stocks tumbling along with it.

"One positive is ... we have not seen a heavy storm of selling," said Alan Ackerman, executive vice president at Fahnestock & Co.

Other losers included Martha Stewart Living Omnimedia, which sank $1.68 to $9.52 after the company announced that chairman and CEO Martha Stewart faces possible criminal charges involving insider trading.

Advancing issues narrowly outnumbered decliners on the New York Stock Exchange. Volume was light at 1.42 billion shares, below Monday's 1.67 billion shares.

The Russell 2000 index, the barometer of smaller company stocks, rose 1.24, or 0.3 percent, to 443.87.

Japan's Nikkei average finished up 0.2 percent. France's CAC-40 and Britain's FTSE 100 each declined 0.3 percent and Germany's DAX lost 1.2 percent.