Stocks rise on energy shares, offsets bank fears

By Steven C. Johnson

NEW YORK (Reuters) - The Dow and S&P 500 rose on Tuesday as hurricane fears lifted oil prices and boosted energy shares, blunting the effect of a report that showed a growing number of problem U.S. banks.

Trading volume was light and volatile, but traders said energy prices were the key mover.

U.S. crude oil, which at one point broke above $117 a barrel, ended up 1 percent on fear that Hurricane Gustav could disrupt output in the U.S. Gulf.

Shares of Exxon Mobil (XOM.N) rose 1.6 percent to $79.95, making them among the biggest boosts for the S&P and the Dow.

"Energy was the story today, with the bounce in the oil stocks being a reaction to the news of the hurricane," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco. He also said the firmer dollar helped stocks.

But gains were limited by a report from the U.S. Federal Deposit Insurance Corporation that said 117 U.S. banks were on its troubled banks list at the end of the second quarter, up from 90 after the first three months of the year.

"We've had some failures already, so this watch list has garnered a lot of attention," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey. "And it's not the number of banks so much as the size."

The FDIC said the assets of the banks on the problem list totaled $78.3 billion through June, up from $26.3 billion at the end of the first quarter.

The Dow Jones industrial average was up 26.62 points, or 0.23 percent, at 11,412.87. The Standard & Poor's 500 Index was up 4.66 points, or 0.37 percent, at 1,271.50. The Nasdaq Composite Index was down 3.62 points, or 0.15 percent, at 2,361.97.

While the FDIC list unnerved the broader market, one analyst said it may be good news for the largest U.S. banks.

"The conclusion is, the weak are going to get weaker and the strong will be able to take advantage of the weak," said Charlie Peabody, a bank analyst at Portales Partners in New York.

Most of the banks on the FDIC's list are small banks.

Shares of top U.S. bank Citigroup (C.N) rose 1.3 percent to $17.84 while JPMorgan Chase (JPM.N) rose 1.3 percent to $36.61. The S&P Financial index rose 0.72 percent, and the KBW Banks index gained 0.65 percent.

Retailers rose, with the S&P retail index gaining 0.7 percent, while the S&P energy index was up 1.8 percent.

Shares of Anadarko Petroleum (APC.N) jumped 6.4 percent after the company announced a share repurchase program of up to $5 billion.