Wall Street rallies on data after three-day slump

NEW YORK (Reuters) – U.S. stocks rose on Thursday, bouncing sharply from a three-day drop, as data pointed to a strengthening economy that could weather the impact of a steep drop in oil prices.

The benchmark S&P index (.SPX) dropped more than 1 percent on Wednesday and had shed 2.4 percent over the prior three sessions, it’s worst run in two months, as weakness in oil prices has weighed heavily on the energy (.SPNY) sector.

But data indicated that lower oil prices encouraged consumer holiday spending, with retail sales data for November beating expectations. The S&P retail index (.SPXRT) jumped 2.1 percent, lifted by a 2 percent climb in Home Depot (HD.N) to $100.96.

“We are starting to get some metrics around the energy and we are seeing that one ‘X’ factor of will consumers spend this extra money?” said Sean McCarthy, regional CIO for Wells Fargo Private Bank in Scottsdale, Arizona.

“And in the holiday season they are (spending), and more so.”

Falling oil prices have added to worries about global demand and raised concerns about earnings for energy companies, with year-end tax selling putting additional pressure on the group. The sector is down 12.8 percent for the year and is the worst performing of the 10 major S&P sectors.

Brent crude (LCOc1), down more than 40 percent from its June high, briefly swung between gains and losses in volatile trading, and last traded flat at $64.24. WTI crude (CLc1) rose 0.2 percent to $61.07. [O/R]

Other economic data showed a strengthening labor market, as weekly initial jobless claims dipped by 3,000 to an adjusted 294,000 while the drop in oil prices helped spur the biggest decline in U.S. import prices in 2-1/2 years.

The data may influence investors’ expectations on whether the Fed will adjust its language to keep interest rates near zero for a “considerable time” when policymakers meet next week.

The Dow Jones industrial average (.DJI) rose 196 points, or 1.12 percent, to 17,729.15, the S&P 500 (.SPX) gained 25.15 points, or 1.24 percent, to 2,051.29 and the Nasdaq Composite (.IXIC) added 65.09 points, or 1.39 percent, to 4,749.12.

Other data showed U.S. business inventories excluding automobiles rose 0.3 in October, which could affect fourth-quarter growth estimates.

Lululemon Athletica (LULU.O) jumped 9.4 percent to $51.10 after the maker of yoga apparel posted quarterly results.

Staples Inc (SPLS.O) jumped 8.8 percent to $16.12 as the best performer on the Nasdaq 100 (.NDX) and Office Depot (ODP.O) climbed 10.3 percent to $7.42 after Activist investor Starboard Value LP disclosed stakes in both office-supply retailers in a move that could set up a potential merger.

Advancing issues outnumbered declining ones on the NYSE by 2,428 to 542, for a 4.48-to-1 ratio; on the Nasdaq, 2,010 issues rose and 566 fell for a 3.55-to-1 ratio.

The benchmark S&P 500 index was posting 29 new 52-week highs and 8 new lows; the Nasdaq Composite was recording 65 new highs and 34 new lows.

(Editing by Bernadette Baum)