US STOCKS-Wall Street jumps as oil drops

(Updates with market hitting session highs)

NEW YORK, Aug 8 (Reuters) - U.S. stocks rose on Friday as a further drop in oil prices buoyed hopes that inflation will ease, stimulating spending by businesses and consumers, which would restore corporate profit growth.

The slide in oil prices overshadowed news of a fourth straight quarterly loss from home finance company Fannie Mae FNM.N , pointing to more fallout from the U.S. housing slump.

U.S. front-month crude CLc1 dropped $3.39 to $116.65 a barrel, more than $30 below its July record high.

The Dow Jones industrial average .DJI rose 54.39 points, or 0.48 percent, to 11,485.82. The Standard & Poor's 500 Index .SPX climbed 5.33 points, or 0.42 percent, to 1,271.40. The Nasdaq Composite Index .IXIC gained 19.11 points, or 0.81 percent, to 2,374.84. A short time later Nasdaq rose 1 percent. (Reporting by Ellis Mnyandu; Editing by Kenneth Barry)