Financials, energy drive indexes higher; Fed meet eyed

By Abhiram Nandakumar and Yashaswini Swamynathan

(Reuters) - The S&P 500 and the Dow were on track for their best two-day run since mid-October as recovering oil prices lifted energy shares and financial stocks rose on a widely expected interest rate hike by the Federal Reserve later this week.

Traders see an 83 percent chance of a rate increase when the Fed ends its two-day meeting on Wednesday, according to the CME Group's FedWatch program, but investors are concerned about the pace of future rate hikes.

"What it comes down to is investors wanting some certainty. If you're going to raise rates, just do it already and give me a clue on what the glide path is going to be," said Matthew Tuttle, chief executive of Tuttle Tactical Management in Stamford, Connecticut.

Bank stocks rose on the expectation of improving interest income from higher rates, with Goldman Sachs' 2.9 percent rise providing the biggest boost to the Dow.

JP Morgan, Morgan Stanley, Citigroup and Bank of America were up about 2.5 percent.

At 12:23 p.m. ET (1523 GMT), the Dow Jones industrial average was up 203.04 points, or 1.17 percent, at 17,571.54.

The S&P 500 was up 25.08 points, or 1.24 percent, at 2,047.02, driven by a 3 percent increase in the energy sector and a 2.35 percent rise in financials.

The Nasdaq Composite index was up 58.52 points, or 1.18 percent, at 5,010.74.

Exxon powered the S&P 500, with a 4.1 percent rise, while Chevron rose 3.6 percent after crude prices recovered from their steep fall on Monday.

"Investors seem to be at the crossroads of optimism and concern, with sentiment today leaning toward optimism," said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis.

Valeant shares were up 17 percent at $110.20 after the Canadian drugmaker signed a distribution deal with Walgreens.

Micron was up 4.5 percent at $14.28 after the chipmaker said it would buy the rest of Taiwan's Inotera Memories for about $3.2 billion.

Dow component 3M was down 5 percent at $149.73 after cutting its 2015 profit outlook.

Qualcomm was up 3.8 percent at $48.58 after the company raised its first-quarter earnings forecast and decided against separating its chipmaking and technology licensing businesses.

Advancing issues outnumbered decliners on the NYSE by 2,416 to 658. On the Nasdaq, 2,008 issues rose and 756 fell.

The S&P 500 index showed eight new 52-week highs and four lows, while the Nasdaq recorded 24 new highs and 104 new lows.

(Reporting by Abhiram Nandakumar in Bengaluru; Editing by Anil D'Silva)