The Commerce Department announced that 685,000 new homes were constructed last month, a 9.3 percent increase from October. Meanwhile, confidence in Germany and Spain inspired investors to buy into the rally. The Dow finished the session up 337 points to 12,103 while Nasdaq leaped 80 points to close at 2603.

On the upside

PulteGroup (NYSE: PHM) and D.R. Horton (NYSE: DHI) led the rally among home builders as investors hoped that the industry may have finally turned the corner.

Banking stocks also joined the rally with shares of Bank of America (NYSE: BAC), Citigroup (NYSE: C) and JP Morgan Chase (NYSE: JPM) all closing in positive territory.

Nike (NYSE: NKE) posted sharply higher revenues as well as profits that overcame increased costs.

On the downside

The software sector failed to keep up with the rest of the markets. Shares of Red Hat (NYSE: RHT) issued a revenue forecast that missed analysts' estimates.

Shares of Oracle (Nasdaq: ORCL) lost ground afterhours after posting 2nd quarter results that missed expectations.

In the broad market, advancing issues outpaced decliners by a margin of 7 to 1 on the NYSE and by nearly 5 to 1 on Nasdaq. The Russell 2000 which tracks small cap stocks surged 29 points to 738.