Wall Street scales record highs on earnings optimism, data

By Sinead Carew

(Reuters) - Wall Street continued its rally on Friday as fourth-quarter earnings season kicked off with solid results from banks and robust retail sales drove gains for consumer stocks.

All three major indexes were on track for record closing highs for the second day in a row.

JPMorgan , the biggest U.S. lender by assets, said a U.S. tax overhaul would help future profits by reducing its tax bill and stimulating more business. The bank's shares rose more than 1 percent.

"The fact all the big money centre banks beat on the bottom line is a good omen for the rest of the earnings season," said William Lynch, director of investments at Hinsdale Associates, in Hinsdale, Illinois.

BlackRock rose 3 percent. The world's largest asset manager reported profit that beat estimates as investors flooded into the relatively low-cost funds.

While Wells Fargo earnings beat expectations, its shares slipped 0.8 percent after it set aside $3.25 billion in the fourth quarter to cover legal expenses related to probes into its mortgage and sales practices.

The Dow Jones Industrial Average rose 202.56 points, or 0.79 percent, to 25,777.29, the S&P 500 gained 16.98 points, or 0.61 percent, to 2,784.54 and the Nasdaq Composite added 43.96 points, or 0.61 percent, to 7,255.74.

The S&P consumer discretionary index <.SPLRCD> jumped 1.2 percent after an increase in retail sales showed households bought more goods, suggesting the economy exited 2017 with strong momentum.

The sector was also helped by a late-afternoon report in Bloomberg that activist D.E. Shaw has built a position in Lowe's Companies , sending that company's shares up 6.4 percent.

Bank stocks were also helped by a rise in Treasury yields after underlying U.S. consumer prices for December posted the biggest gain in 11 months, signalling a pickup in inflation.

Amazon rose 1.89 percent to breach $1,300 for the first time, while Home Depot rose 1 percent.

Earnings for S&P 500 companies are expected to increase on an average by 12.1 percent in the quarter, with profit for financial services companies likely to increase 13.2 percent, according to Thomson Reuters I/B/E/S.

"The biggest thing continues to be the tax bill ... Finance and retail are higher tax bracket names. Some names have a 31 percent rate. If they go down to 21 percent, that's a big driver, especially in the retail space," said Randy Hare, Director of Equity Research of Huntington Private Bank in Columbus, Ohio.

Facebook was down 4.4 percent after it started changing the way it filters posts and videos on News Feed.

Advanced Micro Devices fell 1 percent after the chipmaker said its chips are vulnerability to both variants of the Spectre security flaw, days after saying its risk for one of them was "near zero".

Advancing issues outnumbered declining ones on the NYSE by a 1.11-to-1 ratio; on Nasdaq, a 1.45-to-1 ratio favoured advancers.

The S&P 500 posted 161 new 52-week highs and 11 new lows; the Nasdaq Composite recorded 214 new highs and 13 new lows.

(Additional reporting by April Joyner in New York, Sruthi Shankar in Bengaluru; Editing by Arun Koyyur and Nick Zieminski)