Stocks rise as oil's drop trumps earnings

By Kristina Cooke

NEW YORK (Reuters) - Stocks rose more than 1 percent on Tuesday as oil prices slid over $3 a barrel, taking the edge off a raft of disappointing earnings from American Express and others as well as a weak outlook from iPod maker Apple.

Oil, which last week had its biggest weekly decline ever, lost 2.4 percent in New York as the U.S. dollar rose, easing some worries about the impact of higher energy costs on consumers and businesses.

Consumer stocks like Coca-Cola and Wal-Mart and airlines -- all sensitive to higher fuel costs -- gained as oil prices tumbled. An index of airline stocks surged 22 percent.

The drop in oil prices dominated investor attention even as several big U.S. companies reported results that reflected

that consumers are struggling. Even companies more dependent on wealthier consumers, such as American Express, suffered. The credit card company's stock, a Dow component, plunged 7.1 percent.

There were some bright spots on the earnings front: Caterpillar shares rose 2.4 percent to $74.98 after the maker of heavy construction equipment posted a stronger-than-expected quarterly profit.

"Again it's the drop in energy prices helping the market -- the market was down quite a bit after the earnings last night, and then caught a bid with the drop in oil prices," said Frank Husic, chief investment officer at Husic Capital Management in San Francisco.

"There is a concern the whole world is going to slow and with the slowdown will come poorer times for oil."

The Dow Jones industrial average rose 135.16 points, or 1.18 percent, to 11,602.50, while the Standard & Poor's 500 Index ended up 17.00 points, or 1.35 percent, at 1,277.00. The Nasdaq Composite Index was up 24.43 points, or 1.07 percent, at 2,303.96.

WAMU AND YAHOO UP LATE

After the bell, Washington Mutual, the largest U.S. savings and loan posted a $3.3 billion second-quarter loss. But its stock rose 3.1 percent after it said it didn't need to raise more capital.

Also in extended trade, Internet company Yahoo posted a nearly 19 percent fall in net profit, and net revenue short of lowered Wall Street's expectations. But adjusted profit was in line with Wall Street's targets and the hard-hit stock edged up 0.8 percent after hours. In the regular session, Yahoo fell 1.3 percent to close at $21.40 on Nasdaq.

OIL BELOW $128 A BARREL

Oil prices fell to a six-week low amid concerns over sliding U.S. energy demand and expectations that a tropical storm pushing through the Gulf of Mexico would spare most offshore oil production.

U.S. front-month crude dropped $3.09 to settle at $127.95 a barrel.