By Caroline Valetkevitch
NEW YORK (Reuters) - Stocks rose on Tuesday, led by the health care sector after a government decision on payment rates, while factory orders data confirmed the economy is steadily improving.
The S&P 500 closed at another record high, though it fell short of breaking above its all-time intraday high of 1,576.09. The Dow also ended at another record high.
The government dropped plans to cut payments for private Medicare Advantage insurers and instead said it would allow a 3.3 percent raise.
The news boosted shares of some health insurers, including Humana, which derives about two-thirds of its revenue from Medicare Advantage business. The stock jumped 5.5 percent to $79.11 and was among the biggest percentage gainers on the S&P 500. UnitedHealth Group gained 4.7 percent to $61.74.
"They didn't expect the result that they got. That will help with their bottom line," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
Strengthening U.S. data has helped stocks rally since the start of the year. On Tuesday, U.S. data showed February factory orders rose 3 percent, slightly above expectations. That follows a weak reading on manufacturing on Monday that sparked a pullback in stocks.
The S&P 500 is now up 10.1 percent since the start of the year.
For the day, the Dow Jones industrial average was up 89.16 points, or 0.61 percent, at 14,662.01. The Standard & Poor's 500 Index was up 8.08 points, or 0.52 percent, at 1,570.25. The Nasdaq Composite Index was up 15.69 points, or 0.48 percent, at 3,254.86.
The S&P 500 surpassed its 2007 closing high last Thursday, while the Dow first broke above its 2007 record on March 5.
Stocks pared gains late in the session, giving investors another reason to question the strength of the recent rally.
"The recent legs of this rally have lacked a bit of conviction," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia. "What's been leading equity markets has been more defensive sectors."
Healthcare sector stocks are still seen as cheap relative to the overall market. Humana, which has a market cap of about $11.9 billion, has a forward price-to-earnings ratio of 9.4, below the S&P 500 P/E average ratio of about 16.5. UnitedHealth has a P/E ratio of 10.6 and Cigna has a P/E ratio of 9.7.
"We do think that healthcare stocks are a nice combination of dividend yields, growth and low valuations and we are very constructive on the sector," said Jim Russell, senior equity strategist for U.S. Bank Wealth Management in Cincinnati.
Other big gainers in the healthcare sector included shares of Cigna, up 2.9 percent at $64.75.
Most investors expect moves to be limited this week before Friday's U.S. monthly payrolls report.
The March jobs report could give clues on how successful the Federal Reserve has been in lowering unemployment, one of the primary headwinds for the economy.
About 200,000 jobs were created last month, according to a Reuters poll, down from 236,000 in February. The unemployment rate is expected to come in at 7.7 percent, unchanged from the previous period, the poll showed.
In an effort to bring down the unemployment rate, the Fed has maintained an accommodative monetary policy, which has also benefited stocks.
Other gainers included Hertz Global Holdings shares, up 6.8 percent to $23.41, after the company forecast strong earnings and revenue through 2015 due to increasing global demand for car rentals and benefits from its recently completed acquisition of Dollar Thrifty.
Among decliners, Delta Airlines Inc shares were off 8.1 percent at $14.94. Delta's unit revenue for March rose at a slower pace than in the prior two months.
Shares of Nasdaq OMX Group Inc plunged 12.8 percent to $27.91 after agreeing to buy a BGC Partners Inc. trading platform. BGC shares were up 48.6 percent at $5.72.
Shares of Hewlett-Packard fell 5.2 percent to $22.10 after Goldman Sachs downgraded them to "sell."
Volume was roughly 5.9 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, below the 2012 average daily closing volume of about 6.45 billion.
Decliners outpaced advancers on the NYSE by about 15 to 14 and on the Nasdaq by about 13 to 10.
(Additional reporting by Angela Moon; Editing by Kenneth Barry and Nick Zieminski)