Strong GDP data, weak oil spark Wall St rally

NEW YORK (Reuters) - U.S. stocks rose sharply on Thursday as the government reported the economy grew at a surprisingly robust clip in the second quarter and oil prices eased, driving gains in major industrial and financial companies.

The Dow industrials rose nearly 2 percent after the government said strong export growth and consumer spending helped gross domestic product expand at a 3.3 percent annual rate between April and June, above an initial estimate of 1.9 percent.

That lifted the fortunes of large industrial companies. Shares of heavy equipment maker Caterpillar (CAT.N), often described as an economic bellwether, rose 3 percent.

The brighter economic outlook coupled with a management shake-up at top U.S. mortgage finance company Fannie Mae (FNM.N) boosted financial shares, which led market gains.

"Today's data on GDP was encouraging, and that is what investors really want to see: a tick up in the economy," said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston.

James Paulsen, chief investment officer at Wells Capital Management in Minneapolis, said, "You hate to be underweight stocks when you have an economy that is performing better than expected."

The Dow Jones industrial average ended up 212.67 points, or 1.85 percent, at 11,715.18. The Standard & Poor's 500 Index .SPX closed up 19.02 points, or 1.48 percent, at 1,300.68. The Nasdaq Composite Index ended up 29.18 points, or 1.22 percent, at 2,411.64.

Shares of Dell Inc (DELL.O) fell more than 10 percent in after-hours trade on Thursday after the computer maker reported a surprise 17 percent decline in quarterly profit.

The news weighed on other tech shares, including International Business Machines Corp (IBM.N), down 1 percent in extended trade, and Apple (AAPL.O), down 0.5 percent, and likely points to weakness on Friday.

A retreat in the price of U.S. crude oil, which settled down $2.56 at $115.59 a barrel, eased fears about constraints on consumer and business spending.

Oil, which had jumped above $120 earlier in the session, fell after the International Energy Agency pledged to open its emergency stockpiles if Tropical Storm Gustav damages U.S. oil and natural gas facilities in the Gulf of Mexico.

Financials got a boost from news late on Wednesday that Fannie Mae reshuffled its top management ahead of implementing a plan to preserve capital and cut losses. Shares rose 22.7 percent at $7.95. Shares of Freddie Mac (FRE.N), the other government-sponsored home finance firm, rose 11.2 percent to $5.28.

The management shake-up "shows that Fannie Mae is trying to get the ship moved in the right direction," said Arthur Hogan, chief market analyst at Jefferies & Co. in Boston.

Bank of America (BAC.N), the No. 2 U.S. bank, was the top boost on the S&P, rising 6.0 percent to $31.43.

MBIA (MBI.N) was the biggest percentage winner among Big Board stocks, jumping 34.9 percent to $16.15 after the bond insurer said on Wednesday it plans to reinsure a $184 billion portfolio of investment-grade U.S. public finance credits.

Rival bond insurer Ambac Financial (ABK.N) added 41.6 percent to $7.42, while American International Group (AIG.N), the world's largest insurance company, added 7.6 percent to $21.51

The S&P Financial Index rose 4.5 percent.

Shares of Caterpillar gained 3.1 percent at $71.68. The stock got a boost when Chief Executive Jim Owens said Caterpillar's business in China could double by 2010.

Aircraft maker Boeing Co (BA.N) rose 2.8 percent to $66.34. The company, hoping to avoid a strike, on Thursday said it make a "best and final" contract offer to its largest labor union.

The slide in oil hurt energy shares, with an index of energy companies slipping 0.8 percent.

Upscale U.S. jeweler Tiffany & Co (TIF.N) shares rose 10.7 percent to $43.85 after it posted a higher-than-expected profit and raised its outlook.

Trading volume was light on the New York Stock Exchange, with about 910 million shares changing hands, well below last year's estimated daily average of roughly 1.90 billion. On Nasdaq, about 1.59 billion shares traded, also below last year's daily average of 2.17 billion.

Advancing stocks outnumbered declining ones by about 3.5 to 1 while on the Nasdaq, advancers beat decliners by about 2.6 to 1.

(Additional reporting by Richard Leong and Kristina Cooke; Editing by Leslie Adler)