By Tanya Agrawal
REUTERS - U.S. stocks extended their gains in cautious trading on Tuesday after data showed retail sales continued to climb in August, strengthening the case for an interest rate increase when the Federal Reserve meets this week.
Analysts said an interest rate hike - the first since 2006 -would remove the uncertainty that has dogged the market for several weeks.
"The debate around the Fed continues but the Fed will do more damage waiting for December to raise rather than start the normalization process," said Art Hogan, chief market strategist at Wunderlich Securities.
"If they don't raise rates this week, it's a bad signal."
U.S. interest rates futures implied traders placed a 27 percent chance the Fed would end its near-zero interest rate policy on Thursday, up from 23 percent late on Monday, according to CME Group's FedWatch program.
At 13:10 ET (1710 GMT) the Dow Jones industrial average was up 174.57 points, or 1.07 percent, at 16,545.53, the S&P 500 was up 17.18 points, or 0.88 percent, at 1,970.21 and the Nasdaq Composite was up 36.09 points, or 0.75 percent, at 4,841.85.
All 10 major S&P sectors were up, with the industrials index's 1.24 percent gain leading the advancers. GE was up 1.5 percent while United Parcel Service rose 3 percent.
The financial index rose 0.98 percent, led by the 1.5 percent gains by both JPMorgan and Citigroup.
Gains were capped by other data that showed U.S. manufacturing continuing to struggle. Factory activity in New York state contracted in September for a second straight month.
Stocks have been volatile since China devalued its currency in August. The S&P 500 has had moves of at least 1 percent in more than 10 sessions since Aug. 20.
"There is an argument to be made that part of the current fear in the markets is uncertainty, and the start of the normalization process will eliminate the ambiguity," Jones Trading said in a note to clients.
Shares of Fiat Chrysler Automobiles were up 2.7 percent at $14.71 after the United Auto Workers union said it will keep talking with the automaker to reach a new contract for the company's U.S. factory workers, delaying a possible strike at its most profitable operations.
Gray Television jumped 10.3 percent to $12.95 after the broadcaster said it would buy Schurz Communications' television and radio stations for $442.5 million.
Advancing issues outnumbered decliners on the NYSE by 1,878 to 1,074. On the Nasdaq, 1,745 issues rose and 964 fell.
The S&P 500 index showed one new 52-week high and five new lows, while the Nasdaq recorded 29 new highs and 52 new lows.
(Reporting by Tanya Agrawal; Editing by Don Sebastian)
