U.S. stocks stage late-day rally, oil gains

By Herbert Lash

NEW YORK (Reuters) - U.S. stocks staged a late-day rally on Thursday on renewed hopes that earnings will remain strong, while rebounding equities and news of surging growth in China, the No. 2 energy consumer, helped lift crude prices.

The turn in sentiment came before International Business Machines Corp (IBM.N), the biggest contributor to the Dow's rise, was set to report results after the closing bell.

Wall Street rallied, with the benchmark Standard & Poor's 500 index posting the best four days since late March, when the S&P 500 recovered from a 12-year low set earlier in the month.

"Investors have ratcheted up expectations for earnings almost across the board, so that optimism is still there even if today's action is rather muted," said Paul Baiocchi, senior market strategist at Delta Global Advisors in San Francisco.

After the bell, IBM (IBM.N) posted better-than-expected quarterly results despite a sharp slide in revenue, [ID:nWNAB8097], while quarterly profits at Google Inc (GOOG.O) also were stronger than expected despite a tough advertising market. [ID:nN16436531]

The Dow Jones industrial average .DJI shot up 95.61 points, or 1.11 percent, to close at 8,711.82. The Standard & Poor's 500 Index .SPX advanced 8.06 points, or 0.86 percent, to 940.74. The Nasdaq Composite Index .IXIC rose 22.13 points, or 1.19 percent, to 1,885.03.

European shares hit a one-month closing high on improved sentiment following JPMorgan's results and data that showed the number of U.S. workers claiming new jobless benefits fell last week to their lowest since January.

The seasonally adjusted government data was again distorted by earlier layoffs in the automotive industry.

The FTSEurofirst 300 .FTEU3 index of top European shares ended 0.4 percent higher at 866.81 points, its fourth straight daily gain.

Asian shares across the region outside of Japan .MIAPJ0000PUS rose 1.3 percent to their highest since mid-June, while Japan's benchmark Nikkei .N225 underperformed with a rise of 0.8 percent.

BONDS UP ON CIT SAFETY BID

Risk aversion had earlier swept markets, pushing up U.S. government debt prices and dampening commodity prices after mixed economic data and concern about the possible failure of U.S. lender CIT CIT.N spurred caution.

U.S. Treasuries' prices rose, supported by some bargain hunting after a three-day sell-off, and by safe-haven buying, given the concern about the potential CIT failure.

The benchmark 10-year U.S. Treasury note was up 10/32 in price to yield 3.57 percent. The 2-year U.S. Treasury note was up 2/32 in price to yield 0.99 percent.

Worries about earnings reports on Friday from Citigroup (C.N) and Bank of America (BAC.N) also capped investor enthusiasm and contributed to volatility on Wall Street.