US STOCKS-Wall St rises 1 pct on optimism over budget talks

Mon Nov 19, 2012 10:24am EST

* U.S. lawmakers say they're confident they can avoid "fiscal cliff"

* UBS sets S&P 500 price target for year-end 2013 at 1,425

* U.S. existing home sales climb, housing recovery gains traction

* Indexes up: Dow 1.2 pct, S&P 1.5 pct, Nasdaq 1.4 pct

By Angela Moon

NEW YORK, Nov 19 (Reuters) - U.S. stocks rose more than 1 percent on Monday, rebounding after last week's decline, on signs of progress in talks to resolve the fiscal crunch.

Adding to optimism, U.S. home resales unexpectedly rose in October, a sign that the slow improvement in the job market is helping the housing sector.

In another positive report on housing, sentiment among home builders rose for a seventh straight month in November to the highest level in over six years as demand for new homes increased.

Over the weekend, leading Democratic and Republican lawmakers expressed confidence that they could reach a deal to avert the "fiscal cliff" even as they laid down markers on raising taxes and spending cuts that may make any agreement more difficult.

"While not our base case, we believe that stocks could rise substantially if U.S. policymakers can negotiate a 'grand bargain' that credibly addresses long-term tax, spending and entitlement reforms," said Jonathan Golub, strategist at UBS in New York.

"Unfortunately, our sense is that the most important structural issues will be pushed off into the future, leaving significant uncertainty about the long-term direction of the economy and corporate profits."

Reflecting the uncertainty, UBS introduced a cautious outlook with a year-end 2013 price target on the S&P 500 at 1,425.

The Dow Jones industrial average was up 152.40 points, or 1.21 percent, at 12,740.71. The Standard & Poor's 500 Index was up 20.35 points, or 1.50 percent, at 1,380.23. The Nasdaq Composite Index was up 39.37 points, or 1.38 percent, at 2,892.50.

U.S. financial markets will be closed on Thursday for the Thanksgiving holiday.

Stronger-than-expected earnings also contributed to the market's advance.

Shares of Lowe's Cos Inc, the world's No. 2 home improvement chain, rose 7.3 percent to $34.28 after the company reported higher-than-expected quarterly profit and raised its full-year sales forecast.

Shares of Tyson Foods Inc jumped 7 percent to $18.07 after the company reported higher-than-expected quarterly earnings, helped by higher prices.

But Intel shares fell 0.7 percent to $20.06 on news that the company's Chief Executive Paul Otellini will retire in May, and that the board will consider internal and external candidates to choose Otellini's successor.