Wall Street gains ahead of Fed as energy, bank shares jump

By Marcus E. Howard

(Reuters) - U.S. stocks rose broadly on Tuesday but ended far off their session highs ahead of Wednesday's interest rate decision from the Federal Reserve.

Higher underlying inflation in November cemented market bets that the Fed will raise rates after its two-day meeting.

Bank stocks, which will likely benefit from higher rates, were among the market leaders with a 2.4-percent advance on the S&P financial sector index <.SPSY>.

Goldman Sachs' 3.2-percent rise provided the biggest boost to the Dow industrials. JPMorgan , Morgan Stanley , Citigroup and Bank of America were each up more than 2.7 percent.

Investors seemed to welcome the likely end of the zero interest rate period, said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

He said the keys will be the news conference and release of forecasts from Fed officials, as those will determine the reaction from specific stocks.

"It is truly there that you will be able to discern what the likely tightening cycle goal for 2016 is (going) to look like, and I think that will give us a better sense as to what sectors will respond which way," Luschini said.

With the near certainty of a Fed hike on Wednesday priced in for weeks, investors have been foccusing on the pace at which the U.S. central bank will continue to tighten policy.

The Dow Jones industrial average rose 156.41 points, or 0.9 percent, to 17,524.91, the S&P 500 gained 21.47 points, or 1.06 percent, to 2,043.41 and the Nasdaq Composite added 43.13 points, or 0.87 percent, to 4,995.36.

The S&P energy sector <.SPNY> rallied 2.9 percent on the heels of a more than 2-percent advance in U.S. crude .

Exxon powered the S&P 500 with a 4.4-percent rise, while Chevron rose 3.8 percent after crude prices recovered from their steep fall on Monday.

Valeant shares were up 16.4 percent at $109.59 after the Canadian drugmaker signed a distribution deal with Walgreens .

Dow component 3M was down 6 percent at $148.13 after cutting its 2015 profit outlook.

Qualcomm was up 2.5 percent at $48.02 after the company raised its first-quarter earnings forecast and decided against separating its chipmaking and technology licensing businesses.

Advancing issues outnumbered declining ones on the NYSE by 2,463 to 665, for a 3.70-to-1 ratio on the upside; on the Nasdaq, 2,018 issues rose and 854 fell for a 2.36-to-1 ratio favoring advancers.

The S&P 500 posted 8 new 52-week highs and 8 new lows; the Nasdaq recorded 29 new highs and 149 new lows.

Volume on U.S. exchanges was 8.05 billion shares, above the 7.1 billion average over the last 20 trading days, according to Reuters data.

(Reporting by Marcus E. Howard; Editing by Chizu Nomiyama and Nick Zieminski)