Stocks gain on Wal-Mart profits, deal talk

NEW YORK (Reuters) - Stocks rose on Tuesday after earnings from Wal-Mart and Home Depot and a $39 billion takeover bid in the agriculture sector bolstered confidence in the corporate outlook.

The two retailing giants reported profit that topped expectations, buoying the Dow industrials.

Wal-Mart Stores Inc WMT.N was up 1.9 percent at $51.38 and Home Depot Inc HD.N gained 4.8 percent to $28.69.

“There has been a tug of war between weak economic data and strong corporate results. Today, the earnings finally won,” said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in New Jersey.

Economic data was mixed. Industrial production rose and wholesale prices rose, allaying some fears of deflation, but housing starts suggested that sector remains weak. Most economic data in recent weeks have portrayed a slowdown in the recovery, driving investors away from equities.

The materials sector handily outperformed the broad market after BHP Billiton Ltd BHP.AXBLT.L made an unsolicited $39

billion takeover bid for Potash Corp of Saskatchewan Inc POT.TOPOT.N. The world's largest fertilizer maker rejected the offer as inadequate.

Potash's U.S.-traded stock surged 27.7 percent to $143.17. Fertilizer producer CF Industries CF.N jumped 4.7 percent to $88.53 after Goldman Sachs upgraded the stock, while the materials sector .GSPM gained 2.3 percent.

“The increase in M&A shows CEO’s and CFO’s have more confidence in the outlook for the economy and are willing to start to deploy some of the high cash balances, which have built up in recent months,” said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

The Dow Jones industrial average .DJI was up 103.84 points, or 1.01 percent, at 10,405.85. The Standard & Poor's 500 Index .SPX was up 13.16 points, or 1.22 percent, at 1,092.54. The Nasdaq Composite Index .IXIC was up 27.57 points, or 1.26 percent, at 2,209.44.

Volume continued to be low with 6.99 billion shares traded on the combined NYSE Arca, Nasdaq and American Stock Exchanges, significantly lower than last year’s daily average of 9.65 billion.

Wal-Mart and the retail sector results essentially signal the end of the earnings period. With 93 percent of S&P 500 companies having reported, earnings grew 38 percent in the second quarter. Seventy-five percent of companies in the S&P 500 exceeded expectations, according to Thomson Reuters data.

In the options market, Potash was among the leaders in single stock flow as investors exchanged about 269,000 contracts in the name led by the trading of 159,000 calls, according to Trade Alert.

On the New York Stock Exchange, advancers beat decliners 4 to 1. On Nasdaq, advancers beat decliners 3 to 1.

Additional Reporting by Leah Schnurr and Doris Frankel; Editing by Kenneth Barry