NEW YORK (CNNMoney.com) -- Stocks surged Tuesday, with the Dow jumping close to 400 points on the first day of the new quarter, as investors cheered signs that the companies hit hardest by the credit market crisis seem to be working through the problems.

The Dow Jones industrial average (INDU) rose 391 points or 3.2%. It was the Dow's third best day of the year on a point and percentage basis.

The broader Standard & Poor's 500 (SPX) index gained 47 points or 3.6%. It was the S&P 500's second best day of the year on a point basis and the third best day on a percentage basis.

The Nasdaq composite (COMP) jumped 84 points or 3.7% and saw its third best day of the year on both a point and percentage basis.

Wall Street reacted Tuesday to a bevy of positive developments, including a stronger U.S. dollar, better-than-expected readings on manufacturing and construction, and signs that the hard-hit financial sector is starting to recover.

"I think there's a sense that more of the pieces are being put in place that will repair our financial system," said J. Stephen Lauck, president and CEO at Ashfield Capital Partners. "It's a lengthy process, but I think the market is starting to see that it is underway."

Since the start of the year, one of the big issues has been the uncertainty about how hard the banks will be hit by the credit crisis and when they will start to move beyond it, said Art Hogan, chief market analyst at Jefferies & Co. He said that one of the hopes has been that "we'll get through the first-quarter earnings and see a light at the end of the tunnel."

Some of the developments Tuesday seemed to support such hopes, including news that Lehman Brothers is raising cash and the fact that both UBS and Deutsche Bank announced writedowns.

UBS and Deutsche Bank are European banks and Hogan said that psychologically that's important for investors.

"A lot of what has been going on in the credit derivatives market has been laid on the back of the U.S. and the U.S. dollar," Hogan said. "Today we're getting a sense that it's broader and we're seeing a recovery in the dollar and in the financial stocks."

Whether the stock advance can continue over the next few weeks will depend on a few factors. In the next two weeks, companies will continue to "pre-announce" earnings that are notably stronger or notably weaker than forecast. A lot of critical economic reports are due, including Friday's March jobs report.

Stocks rose Monday on falling oil prices and the Bush administration's proposed financial regulation overhaul. Monday was the last day of a brutal first quarter in which recession fears sent the Dow down 7.6%, the S&P 500 down almost 10% and the Nasdaq down just over 14%.

Banks and mortgage lenders. Lehman Brothers (LEH, Fortune 500) said it will raise a higher-than-expected $4 billion in preferred stock, due to stronger-than-expected demand, sending shares almost 18% higher.

UBS (UBS) said that it will seek $15.1 billion in new capital. The Swiss bank also warned that it will take a steep first-quarter loss, write down $19 billion related to bad mortgage bets and said that its chairman is stepping down. UBS jumped 14.6%.

Deutsche Bank (DB) said it would write down about $4 billion in the quarter, related to bad mortgage bets, sending shares about 3% higher.

Thornburg Mortgage (TMA) said it raised $1.35 billion in an offering, sending its stock 13% higher.

Other big bank stocks jumped as well. Citigroup (C, Fortune 500) rose rose over 11%, Bank of America (BAC, Fortune 500) rose close to 8%, JP Morgan Chase (JPM, Fortune 500) rose over 9%.

But gains were broader based, with all 30 Dow components rising.

Tech gainers Tuesday included Microsoft (MSFT, Fortune 500), Intel (INTC, Fortune 500), Hewlett-Packard (HPQ, Fortune 500), Oracle (ORCL, Fortune 500), Cisco Systems (CSCO, Fortune 500) and eBay (EBAY, Fortune 500).

On the downside, reports showed that U.S. auto sales continued to slide in March, including Ford Motor (F, Fortune 500), which saw its U.S. sales slump 14%. (Full story).

Market breadth was positive. On the New York Stock Exchange, winners topped losers by over 5 to 1 on volume of around 1.70 billion shares. On the Nasdaq, advancers topped decliners by almost 3 to 1 on volume of around 2.16 billion shares.

Economic news. The ISM's manufacturing index rose to 48.6 in March, from 48.3 in February, surprising economists who thought it would fall to 47.5, on average. Nonetheless, any reading below 50 indicates weakness in the sector.

Another report showed that construction spending fell 0.3% in February, after falling 1% in January. Economists thought spending would fall 0.9% in February.

Commodity prices. A rising dollar sent oil and metal prices lower, providing investors with some relief on the inflation front.

U.S. light, crude oil for May delivery fell 60 cents to settle at $100.98 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery fell $33.30 to settle at $882.90 an ounce.

Other markets. The dollar rose versus the euro and the yen.

Treasury prices tanked, raising the yield on the benchmark 10-year note to 3.56% from 3.41% late Monday. Bond prices and yields move in opposite directions.