Wall Street advances as energy, bank stocks rally

By Yashaswini Swamynathan

(Reuters) - Wall Street rose after two days of losses on Wednesday after strong economic data boosted financial stocks and a surge in oil prices helped the energy sector.

A report from the Institute of Supply Management showed activity in the U.S. services sector saw a big rebound in September, after having slowed to more than a six-year low in the previous month.

The data raised the prospects of a U.S. interest rate hike in the near term and comes before a carefully watched non-farm payrolls report on Friday.

Oil prices rose above $52 - a level not seen since June - after data showed a bigger-than-expected draw in U.S. crude inventories.

"The markets are taking the economic news positively, but it is a double-edged sword in our opinion because a better economy means the Fed is going to finally start moving on rates," said Brad Lamensdorf, co-manager at Ranger Alternative Management in Connecticut.

A growing number of Fed officials have argued for a rate hike before the year ends as conditions in the labor market improve and inflation inches toward the central bank's 2 percent target.

Traders priced in a near 65 percent chance of a rate hike in December after the ISM report, according to the CME Group's FedWatch tool.

The odds had slightly reduced earlier in the day after data showed that fewer-than-expected jobs were added in the private sector last month.

The S&P financial sector rose 1.46 percent to more than a three-week high.

Wells Fargo and Bank of America rose 2.2 percent and were the top influences on the S&P 500 index.

At 12:24 p.m. ET (1624 GMT), the Dow Jones Industrial Average was up 125.12 points, or 0.69 percent, at 18,293.57.

The S&P 500 was up 11.27 points, or 0.52 percent, at 2,161.76 and the Nasdaq Composite was up 39.24 points, or 0.74 percent, at 5,328.90. Seven of the 11 major S&P 500 indexes were higher, with energy surging 1.7 percent. Exxon Mobil and Chevron were up about 0.8 percent.

Chesapeake Energy rose 5.8 percent and was the biggest gainer on the S&P.

Telecom services, consumer staples and utilities, sectors that pay high dividends, were worst hit.

Twitter rose 4.4 percent after the Wall Street Journal reported that the micro-blogging website is expected to field bids this week.

Salesforce dropped 6.5 percent after a Mizuho analyst raised concerns about Chief Executive Marc Benioff's rumored quest to buy Twitter.

Advancing issues outnumbered decliners on the NYSE by 1,912 to 975. On the Nasdaq, 2,040 issues rose and 672 fell.

The S&P 500 index showed 23 new 52-week highs and four new lows, while the Nasdaq recorded 86 new highs and 17 new lows.

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Anil D'Silva)