Banks jump as Wall Street rallies ahead of Fed; energy up with oil

By Marcus E. Howard

(Reuters) - U.S. stocks rallied broadly on Tuesday, led by energy and financial shares as crude oil prices rose and 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 their Wednesday meeting.

Bank stocks, which will benefit from higher rates, led the market with a 2.7 percent advance on the S&P financial sector index <.SPSY>.

Goldman Sachs' 3.7 percent rise provided the biggest boost to the Dow industrials. JPMorgan , Morgan Stanley , Citigroup and Bank of America were each up more than 3 percent.

The S&P energy sector <.SPNY> also rose 2.7 percent, which tracked the near 3 percent advance in U.S. crude and Brent .

Exxon powered the S&P 500 with a 4.4 percent rise, while Chevron rose 4 percent after crude prices recovered from their steep fall on Monday.

Investors have come to terms with the Fed's anticipated rate hike decision, said Joseph Benanti, managing director, sales and trading at Rosenblatt Securities in New York.

"The economy is getting a little bit better and raising rates does not mean the market is going lower; it's actually a positive sign," he said.

At 2:50 p.m. the Dow Jones industrial average rose 215.03 points, or 1.24 percent, to 17,583.53, the S&P 500 gained 28.42 points, or 1.41 percent, to 2,050.36 and the Nasdaq Composite added 63.66 points, or 1.29 percent, to 5,015.88.

Valeant shares were up 18.6 percent at $112.72 after the Canadian drugmaker signed a distribution deal with Walgreens .24

Dow component 3M was down 6.2 percent at $147.87 after cutting its 2015 profit outlook.

Qualcomm was up 3.2 percent at $48.35 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 2,458 to 653, for a 3.76-to-1 ratio on the upside; on the Nasdaq, 2,062 issues rose and 768 fell for a 2.68-to-1 ratio favoring advancers.

The S&P 500 posted 8 new 52-week highs and 7 new lows; the Nasdaq recorded 29 new highs and 126 new lows.

(Reporting by Marcus Howard; Editing by Chizu Nomiyama)