Banks, oil spark rebound, but Wells Fargo off late

By Ellis Mnyandu

NEW YORK (Reuters) - Stocks rose on Tuesday after Abu Dhabi's $7.5 billion purchase of a stake in Citigroup Inc (C.N) spurred a rebound in financial stocks and a drop in oil prices boosted shares of big manufacturers.

The $7.5 billion investment gives the No. 1 U.S. bank fresh capital as it wrestles with fallout from the subprime mortgage crisis and showed that investors were starting to see value among beaten-down bank stocks.

A more-than-$3 slide in oil prices also underpinned the market, helping shares of retailers and big manufacturers such as General Electric (GE.N). The diversified manufacturer was the top contributor to the S&P 500's rise.

The market is buoyed by news of "the cash infusion into Citigroup," said David Sowerby, market strategist for Loomis Sayles in Detroit.

Besides Citigroup's stock, other rising shares in the financial services sector included JPMorgan Chase & Co (JPM.N) and Bank of America Corp (BAC.N). The S&P financial stocks index .GSPF rose 2.6 percent.

"Secondly, I believe that institutional investors are seeing more opportunities in the market to be more aggressive buyers, particularly when you look at extremely low yields in the Treasury market," Sowerby added.

The Dow Jones industrial average .DJI was up 215.00 points, or 1.69 percent, at 12,958.44. The Standard & Poor's 500 Index .SPX was up 21.01 points, or 1.49 percent, at 1,428.23. The Nasdaq Composite Index .IXIC was up 39.81 points, or 1.57 percent, at 2,580.80.

CITIGROUP JUMPS

Abu Dhabi Investment Authority, considered the world's largest sovereign wealth fund, is buying a 4.9 percent stake in Citigroup, whose stock finished up 1.5 percent at $30.26 on the New York Stock Exchange.

Shares of JPMorgan, the No. 3 U.S. bank, ended up 4.7 percent at $42.35 and shares of Bank of America, the No. 2 U.S. bank, climbed 2.5 percent to $42.94, both on the NYSE.

After the closing bell, shares of Wells Fargo & Co (WFC.N) dropped more than 2 percent to $29.19 after the fifth-largest U.S. bank said it would take a $1.4 billion charge in the fourth-quarter due to mortgage losses.

Wells Fargo shares had risen 1.2 percent to close on the NYSE at $29.83.

Shares of Freddie Mac (FRE.N) also fell in after-hours trading after the No. 2 U.S. home financing provider said it would slash its dividend by 50 percent and would raise $6 billion through the sale of preferred stock.

OIL BOOST

During the regular session, GE shares finished up 2 percent up at $37.45 on the NYSE. The drop in oil prices helped calm worries about the impact of higher energy costs on businesses, as well as on consumers.