Wall Street up as oil recovers; Fed in focus

By Abhiram Nandakumar and Yashaswini Swamynathan

REUTERS - Wall Street was on track for a second day of gains on Tuesday as energy stocks rose in tandem with recovering oil prices, and a day before a widely expected interest-rate hike by the Federal Reserve in nearly a decade.

Traders see an 83 percent chance of a liftoff this week, according to the CME Group's FedWatch program, but investors are concerned about the pace of future rate hikes.

"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.

Bank stocks rose on the expectation of improving interest income from higher rates, with Goldman Sachs' 2.6 percent rise providing the biggest boost to the Dow.

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

Scott Brown, chief economist at Raymond James in St. Petersburg, Florida, said he expects trading to be slightly volatile as traders set up positions ahead of the Fed's statement, adding that a rate hike was largely priced in.

"It will really be a shock to the market if (the Fed) didn't move," Brown said.

At 10:53 a.m. ET (1553 GMT), the Dow Jones industrial average was up 203.64 points, or 1.17 percent, at 17,572.14, the S&P 500 was up 25.32 points, or 1.25 percent, at 2,047.26 and the Nasdaq Composite index was up 62.03 points, or 1.25 percent, at 5,014.26.

Nine of the 10 major S&P sectors were higher, with the energy sector's 2.2 percent rise leading the advancers.

Exxon powered the S&P 500, with a 2.4 percent rise, while Chevron rose 2 percent after crude prices recovered from their steep fall on Monday.

A rout in commodity prices has also rattled the junk bond market over the past week, with some high-profile funds halting redemptions.

Valeant shares were up 14.2 percent at $107.50 after the Canadian drugmaker signed a distribution deal with Walgreens.

Micron was up 4.7 percent at $14.31 after the chipmaker said it would buy the rest of Taiwan's Inotera Memories for about $3.2 billion.

3M was down 4.4 percent at $150.67 after cutting its 2015 profit outlook.

Advancing issues outnumbered decliners on the NYSE by 2,351 to 656. On the Nasdaq, 1,952 issues rose and 711 fell.

The S&P 500 index showed eight new 52-week highs and three lows, while the Nasdaq recorded 18 new highs and 79 new lows.

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