By Karen Langley and Anna Hirtenstein

U.S. stocks rose Tuesday, sending the S&P 500 and Nasdaq Composite to fresh records, as the optimism behind the November market rally extended into a new month.

Investors have been heartened in recent weeks by promising reports on the effectiveness of coming vaccines in protecting people from Covid-19. The strong results have raised hopes that industries hurt by the pandemic may recover more quickly than previously thought.

"That news was so much more positive than I think people expected," said Elliott Savage, portfolio manager of YCG Enhanced Fund. "To have two come out that were 90 and 95% effective, I think that just was a very big change in expectations for how quickly the economy can get back to quote-unquote normal."

Advances toward protecting populations against the coronavirus continued to be a focus Tuesday. The European Union's chief medicines regulator said that Pfizer partner BioNTech and drugmaker Moderna both applied for their coronavirus vaccines to be approved in the EU.

In another potential positive sign for markets, negotiations in Washington over additional coronavirus relief showed signs of resuming Tuesday. Investors have closely followed developments that could lead to more economic stimulus.

The S&P 500 gained 40.82 points, or 1.1%, to 3662.45, its 27th record close of 2020. The tech-heavy Nasdaq Composite advanced 156.37 points, or 1.3%, to 12355.11, its 46th record close of the year. The Dow Jones Industrial Average added 185.28 points, or 0.6%, to 29823.92, after on Monday closing out its best month since 1987.

Despite the tumult of 2020, the S&P 500 is up 13% for the year, while a surge in technology shares has helped the Nasdaq soar 38%.

Small stocks also extended their recent gains, with the Russell 2000 index rising 0.9%, after posting its best-ever monthly gain in November.

"We see a lot of opportunity within the small-cap space," said Katerina Simonetti, senior vice president at Morgan Stanley Private Wealth Management. "We see a really good story of recovery there."

Tuesday's gains were broad, with 10 of the S&P 500's 11 sectors rallying. A wide range of stocks have powered the recent rally, leaving major indexes less reliant on a few highflying companies to lift them.

The broadening of market participation is a healthy sign, said Lauren Hill, portfolio manager at Westwood Holdings Group.

"I think that means that more people believe that the recovery is taking shape with the vaccine announcements that we've had in the last few weeks," she said. "People are looking ahead to 2021 with optimism."

Among individual stocks, Tesla shares rose $17.16, or 3%, to $584.76 after S&P Dow Jones Indices said it would add the car maker's full weight to the S&P 500 in one move before the start of trading on Dec. 21.

Shares of Zoom Video Communications dropped $72.05, or 15%, to $406.31. The videoconferencing company on Monday signaled that higher sales in recent months have come with higher costs, disappointing investors.

In bond markets, the yield on the benchmark 10-year U.S. Treasury note rose to 0.933%, from 0.845% on Monday.

Overseas, the pan-continental Stoxx Europe 600 rose 0.7%. Surveys on manufacturing activity in many major European economies on Tuesday showed a broad continued expansion in the eurozone.

"The manufacturing sector is one part of the European economy that is actually managing to retain some degree of resilience," said Michael Hewson, a chief markets analyst at CMC Markets. "Ultimately it is encouraging, but it doesn't tell us much about the more vulnerable sectors of the economy like services."

In Asia, most major benchmarks rose by the close of trading. The Shanghai Composite Index added 1.8%, Hong Kong's Hang Seng advanced 0.9% and Japan's Nikkei 225 climbed 1.3%.

A private gauge of manufacturing activity in China hit its highest level in a decade in November, signaling a strong recovery in the world's second-largest economy.

Write to Karen Langley at karen.langley@wsj.com and Anna Hirtenstein at anna.hirtenstein@wsj.com

(END) Dow Jones Newswires

December 01, 2020 17:40 ET (22:40 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.