Positive developments from the other side of the Atlantic and an upbeat outlook from aluminum producer Alcoa combined to take the markets higher on Tuesday. Meanwhile, what was most significant was that Wall Street logged a five-month trading high. The materials sector contributed significantly to the broader rally along with decent gains by technology stocks.

The Dow Jones Industrial Average (DJIA) climbed 0.6% to end the day at 12,462.47. The Standard & Poor 500 (S&P 500) gained 0.9% and finished yesterday’s trading session at 1,292.08. The tech-laden Nasdaq Composite Index inched up by a percent to close the day at 2,702.50. The fear-gauge CBOE Volatility Index (VIX) dropped 1.8% to settle at 20.69, continuing to display stronger conviction in the markets. The VIX has declined by 11.6% this year, hovering around levels that markets last witnessed in July 2011. The Street looked busy yesterday as the consolidated volumes on the New York Stock Exchange, NYSE Amex and Nasdaq were 7.02 billion shares, ahead of the daily average of 6.7 billion. On the NYSE, the advancers had an upper hand over the decliners, as for 75% of the gainers, 22% stocks moved down. The remaining 3% of the stocks were left unchanged.

Investors’ smiles widened after they learnt that the Dow and S&P 500 had hit five-month intra-day highs. The S&P 500 witnessed its highest closing levels since July last year. Markets had been trending up over the past few sessions, and a slew of encouraging economic reports, particularly since late-December, have been boosting sentiment. Clearly, economic data provides significant direction to the markets and is expected to do so in the coming days. Coupled with these developments, Alcoa, Inc. (NYSE:AA) has unofficially kick started the earnings season, and market movement will largely depend on the bellwether’s quarterly results.

In fact, Alcoa’s upbeat guidance paved the way for yesterday’s gains. Post the closing bell on Monday, Alcoa reported a loss of $0.03 per share, excluding special items, for the period from October to December, 2011. However, the bellwether’s revenues increased 6% and also topped forecasts. Alcoa also boosted sentiment when it said that it expects global aluminum demand to grow 7% in 2012. A large group of companies depend on Alcoa and an upbeat outlook from the aluminum maker perhaps hints at better days ahead for the economy. Alcoa projected growth in automotive, aerospace, construction, packaging and commercial transportation.

The materials sector cashed in on the optimism and the Materials Select Sector SPDR (XLB) fund was up 1.9%. Among the gainers, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), Southern Copper Corp. (NYSE:SCCO), Newmont Mining Corp. (NYSE:NEM) and E. I. du Pont de Nemours and Company (NYSE:DD) gained 4.0%, 3.7%, 1.9% and 1.5%, respectively.

Among the other sectors, the technology sector also enjoyed significant gains. Among the gainers in the technology sector, Computer Sciences Corporation (NYSE:CSC), Dell Inc. (NASDAQ:DELL), Hewlett-Packard Company (NYSE:HPQ), Super Micro Computer, Inc. (NASDAQ:SMCI) and Avid Technology, Inc. (NASDAQ:AVID) jumped 4.5%, 1.6%, 1.0%, 1.8% and 5.6%, respectively.

Europe also spurred the positive mood yesterday after ratings agency Fitch Ratings affirmed that it will not lower France’s ‘AAA” credit rating. The euro also moved higher against the greenback for the second day in a row.