* Cisco shares jump on outlook, lift S&P and Nasdaq
* Oil touches three-month low below $118
* Freddie Mac posts loss, will slash dividend
* Dow up 0.4 pct, S&P up 0.3 pct, Nasdaq up 1.2 pct
(Updates to close)
By Kristina Cooke
NEW YORK, Aug 6 (Reuters) -U.S. stocks rose on Wednesday,
building on the previous day's big gains, as a further drop in
oil prices and a reassuring outlook from Cisco Systems (CSCO.O)
overshadowed persistent credit concerns.
Cisco, the maker of equipment that directs Web traffic, set
the tone for tech shares after it posted a
stronger-than-expected quarterly profit and said it expects the
weak economic environment to be relatively short lived. Its
shares jumped nearly 6 percent.
A drop in the price of oil to a three-month low below $118
a barrel helped the broader market recover from early declines
sparked by home finance company Freddie Mac's
wider-than-expected loss. Freddie FRE.N also set plans to
slash its dividend by at least 80 percent as it braced for a
prolonged housing crisis.
"It's good to see the market holding onto yesterday's
gains. Cisco is probably responsible for much of the Nasdaq's
move," said John Forelli, portfolio manager at Independence
Investments LLC in Boston.
The Dow Jones industrial average .DJI rose 40.30 points,
or 0.35 percent, to 11,656.07, while the Standard & Poor's 500
Index .SPX gained 4.30 points, or 0.33 percent, to 1,289.18.
The Nasdaq Composite Index .IXIC rose 28.54 points, or 1.21
percent, to 2,378.37.
Forelli noted that some commodity-related shares, which
investors had unloaded earlier this week amid fears a global
economic slowdown could dent demand, rebounded.
"The fundamentals in these commodity-related stocks are
still pretty good -- it could be bargain-hunting, maybe it's
also a little more belief that the economic growth story is not
completely over," Forelli said.
Shares of miner Freeport McMoran (FCX.N) jumped 11 percent
to $87.67, while fertilizer producer Mosaic Co (MOS.N) rose 2
percent to $112.73. Analysts said a $10 billion takeover bid
unveiled by miner Xstrata XTA.L for the world's third-biggest
platinum producer, Lonmin (LMI.L), also helped fuel interest in
the materials sector.
The technology sector also got a lift from a report that
Microsoft Corp (MSFT.O) may buy back as much as $20 billion of
its stock to boost its share price. Shares rose 3.1 percent to
$27.02 after the report by Bloomberg News, citing a UBS
analyst. Microsoft could not be reached for comment.
Shares of Cisco rose 5.7 percent to $23.93.
On the Dow, shares of heavy equipment maker Caterpillar Inc
(CAT.N) rose 3.4 percent to $70.51, helped by lower oil prices.
Investors have worried that higher fuel prices could cut into
Oil CLc1 briefly fell below $118 a barrel -- far below
records above $145 set in July -- after government data showed
that crude oil supplies rose much more than expected last week.
Crude finished the session at $118.58 per barrel.
Earlier, Freddie Mac's wider-than-expected loss pushed
stock prices lower and stoked concern about the outlook for the
Freddie Mac said it was doubling the money set aside for
bad loans. [ID:nN06429838] Its shares fell 19.3 percent to
$6.49. The S&P financial sub-index .GSPF fell 1 percent.
"I don't see much light at the end of the tunnel," said
Alan Lancz, president of Alan B. Lancz & Associates Inc, an
investment advisory firm in Toledo, Ohio. "I still think there
will be more problems, not only with Fannie and Freddie, but
also with a number of banks," he said.
Trading was thin on the New York Stock Exchange, with about
1.19 billion shares changing hands, below last year's estimated
daily average of roughly 1.9 billion, while on Nasdaq, about
2.24 billion shares traded, above last year's daily average of
Advancing stocks outnumbered declining ones on the NYSE by
17 to 14 on the NYSE and by 4 to 3 on the Nasdaq.
(Additional reporting by Ellis Mnyandu; Editing by Leslie