Wall Street posted a healthy advance Tuesday as consumer confidence surged to a two-year high and quelled investor concerns about the economy a day before the Federal Reserve's decision on interest rates.

The Conference Board's consumer confidence index rose strongly in June, far outstripping the market's expectations. Strong consumer confidence is seen as a key factor in the economic recovery, as it means people are more likely to spend.

"The nice thing about this number is that you get all the good news, but it doesn't necessarily correlate to inflation," said Michael Palazzi, managing director of equity trading at SG Cowen Securities. "Yes, inflation will follow and rates will go up, but we have a strong base for the economy, rates are still low, and now we have a lot of confidence."

The Dow Jones industrial average gained 56.34, or 0.5 percent, to 10,413.43. The Standard & Poor's 500-stock index rose 2.85, or 0.3 percent, to 1136.20, and the Nasdaq composite index increased 15.11, or 0.7 percent, to 2,034.93.

The Fed is expected to announce Wednesday an increase of at least a quarter of a percentage point in the benchmark lending rate, which stands at a 45-year low of 1 percent.

The consumer confidence report helped the market overcome disappointing news from Washington Mutual and Target, which warned that quarterly results would be lower than expected. Investors feared an interest rate hike would harm financial stocks, while Target's warning, combined with a similar outlook from Wal-Mart Stores, did not bode well for retailers.

Target fell $1.75, to $42.29, after Prudential lowered its estimates of same-store sales growth for the quarter. The discount retailer has also warned that sales would be below Wall Street expectations.

Washington Mutual skidded $2.84, to $38.47, after the Seattle-based bank lowered its 2004 earnings forecasts, citing the impact of rising interest rates on its mortgage business.

A bullish analysis from Lehman Brothers boosted Boeing, which gained 30 cents, to $50.51. The brokerage firm increased its earnings outlook for the aircraft manufacturer based on stronger aircraft deliveries.

Online retailer Amazon.com said it is seeking to dissolve its partnership with Toys R Us, claiming its contract with the toy retailer has been a "chronic failure." The two are embroiled in a legal battle and have entered mediation. Amazon rose 32 cents, to $53.71, while Toys R Us fell 30 cents, to $15.88.

Other Indicators

* The New York Stock Exchange composite index rose 2.94, to 6574.52; the American Stock Exchange index fell 3.49, to 1244.27; and the Russell 2000 index of smaller-company stocks rose 3.73, to 587.83.

* Advancing issues narrowly outnumbered declining ones on the NYSE, where trading volume rose to 1.37 billion shares, from 1.35 billion on Monday. On the Nasdaq Stock Market, advancers outnumbered decliners by 13 to 9 and volume totaled 1.55 billion, down from 1.59 billion.

* The price of the Treasury's 10-year note rose $4.06 per $1,000 invested, and its yield fell to 4.69 percent, from 4.74 percent on Monday.

* The dollar rose against the Japanese yen and the euro. In late New York trading, a dollar bought 108.37 yen, up from 107.95 late Monday, and a euro bought $1.2083, down from $1.2191.

* Light, sweet crude oil for August delivery settled at $35.66, down 58 cents, on the New York Mercantile Exchange.

* Gold for current delivery fell to $392.50 a troy ounce, from $401.00 on Monday, on the New York Mercantile Exchange's Commodity Exchange.