The three main Wall Street stock indexes rallied on Tuesday, a day before an expected interest rate hike by the U.S. Federal Reserve, while oil prices dropped by 7 percent on hopes of an end to the conflict in Ukraine.

Investors are expecting the U.S. central bank to raise interest rates for the first time in three years by at least 25 basis points amid surging prices. Traders will also be closely watching the Fed for details on how it plans to end its bond-buying program.

Ahead of the Fed's meeting on Wednesday, the benchmark 10-year note yields eased from more than two-year highs and were last at 2.1544 percent, after earlier rising to 2.169 percent, the highest since June 2019.

"I think the big event this week is going to be Fed discussing what they're going to do with the portfolio and how fast they're going to move. The expectation in the short term of course is going to be the raising of the rates by a quarter of a percent," said Tom Plumb, portfolio manager at Plumb Balanced Fund in Wisconsin.

On Wall Street, the benchmark S&P 500, which had slumped by about 2.4 percent in the prior three sessions, rallied, driven by technology, consumer discretionary and healthcare sectors. 

The Dow Jones Industrial Average rose 1.82 percent to 33,544.34, the S&P 500 gained 2.14 percent to 4,262.45 and the Nasdaq Composite added 2.92 percent to 12,948.62.

"What you're seeing is relief rallies on a bear market. There's hopes and expectations that something will start resolving in Ukraine," Plumb added.

Oil prices tumbled more than 6 percent to their lowest in almost three weeks on Tuesday.

Brent futures plummeted 6.5 percent to settle at $99.91 a barrel, while U.S. West Texas Intermediate (WTI) crude fell 6.4 percent to settle at $96.44 a barrel. Both contracts settled below $100 per barrel for the first time since late February.

The U.S. dollar lost value to the euro and other major currencies after oil prices fell and ahead of the Fed's expected rate hike. The dollar index fell 0.043 percent, with the euro up 0.04 percent to $1.0943.

Safe-haven gold fell nearly more than 1 percent to a two-week trough. Spot gold dropped 1.8 percent to $1,915.48 an ounce, while U.S. gold futures fell 1.55 percent to $1,929.30 an ounce.

(With input from Reuters)