Stocks rise on stimulus plan hopes

NEW YORK (Reuters) - Stocks gained on Tuesday on the increased likelihood of a government stimulus package after the release of minutes from the last Federal Reserve policy meeting painted a dismal picture of the U.S. economy.

Investors bet technology stocks would benefit from President-elect Barack Obama's proposed economic plan that would include the largest U.S. infrastructure investment since the 1950s.

Microsoft (MSFT.O) added 1.2 percent to $20.76 after the software maker said it sold 28 million units worldwide of its Xbox 360 video game console through the end of 2008, extending the Xbox's lead over rival Sony Corp's (6758.T)(SNE.N) PlayStation 3.

The Federal Reserve, in minutes from its December 15-16 meeting, warned of uncomfortably low levels of inflation and said the economic outlook will be weak for some time.

"There is a little bit of a honeymoon period with the ushering in of the new calendar year, people are anticipating bold initiatives in the stimulus package," said Todd Clark, managing director of stock trading at Nollenberger Capital Partners in San Francisco.

"It seems like there is some willingness to take risks again."

The Dow Jones industrial average .DJI was up 62.21 points, or 0.69 percent, to 9,015.10. The Standard & Poor's 500 Index .SPX gained 7.25 points, or 0.78 percent, to 934.70. The Nasdaq Composite Index .IXIC added 24.35 points, or 1.50 percent, to 1,652.38.

The Dow has risen six of the last eight trading sessions and is down 28 percent from one year ago.

Retailers rose ahead of closely monitored same-store sales figures -- an industry benchmark -- later in the week after the latest report on U.S. chain stores provided a small sign of relief. After a dismal holiday shopping season, the data showed sales rose 1.4 percent last week over the prior period and fell less than the same week a year earlier. The S&P retail index .RLX rose 2.3 percent.

Materials and mining companies were among the top advancers on Tuesday as a global commodities benchmark .CRB settled at its highest level since November 28, helped in part by a rally in precious and base metals, soft commodities and some energy futures.

The S&P index of materials companies .GSPM rose 1.9 percent, while an ETF tracking both metal and mining companies (XME.P) jumped 3.6 percent.

But in after-the-bell trade, shares of Alcoa (AA.N) sank after the aluminum producer said it will cut production and reduce about 13,500 jobs, or about 13 percent of its global workforce, in an effort to save cash and reduce costs in response to the economic downturn.

Shares of Alcoa, a Dow component, were down 4.3 percent in after-market trade.

Earlier in the session, weaker-than-expected new orders received by U.S. factories in November and a seven-year low in pending home sales for that month spurred concerns about mounting job losses and the deepening U.S. recession.

Technology shares, which are seen as better prepared to weather the economic downturn due to large cash reserves, were a particular bright spot. International Business Machines Corp (IBM.N) and Hewlett-Packard Co (HPQ.N) pushed the Dow higher, rising 2.8 percent and 8.2 percent respectively.

However, after initially rising and helping to lift the Nasdaq in the wake of an Oppenheimer & Co upgrade, shares of Apple Inc (AAPL.O) retreated as its performance at the Macworld expo in San Francisco disappointed investors. Apple, which had previously introduced the iPhone at Macworld, frustrated investors with its lack of big news.

Shares of Apple slipped 1.7 percent to $93.02.

Volume on the New York Stock Exchange totaled about 1.33 billion shares, and about 2.17 billion shares traded on the Nasdaq.

Advancers outnumbered decliners on the New York Stock Exchange by a ratio of about 7 to 2, while on the Nasdaq the ratio was about five to two.

(Additional reporting by Deepa Seetharaman; Editing by Leslie Adler)