* Stocks rally on big lift in 2nd quarter GDP revision.
* Oil falls on IEA supply plan if Gustav slams U.S. Gulf
* Financial, retail stocks lead rally
* Dow up 1.6 pct, S&P 500 up 1.1 pct, Nasdaq up 1.0 pct
(Updates to midday, changes byline)
By Richard Leong
NEW YORK, Aug 28 (Reuters) - U.S. stocks rallied on
Thursday as a surprisingly big upward revision to U.S. growth
in the second quarter and lower oil prices fanned optimism
about the economy.
The government's report of second-quarter growth of 3.3
percent, fueled by exports and consumer spending, spurred
buying of industrial shares such as Caterpillar <CAT.N>, often
described as an economic bellwether, and retailers.
The improved economic view, together with positive news in
the financial sector also sparked investors to scoop up
financial stocks like MBIA Inc <MBI.N>.
"You hate to be underweight in stocks when you have an
economy that is performing better-than-expected," said James
Paulsen, chief investment officer at Wells Capital Management
in Minneapolis.
The 3.3 percent growth rate in the second quarter topped
the government's initial estimate of growth of 1.9 percent.
[].
The Dow Jones industrial average <> was up 187.19
points, or 1.63 percent, at 11,689.70. The Standard & Poor's
500 Index <.SPX> was up 13.78 points, or 1.08 percent, at
1,295.44. The Nasdaq Composite Index <> was up 24.35
points, or 1.02 percent, at 2,406.81.
A late morning retreat in the price of oil sparked a fresh
round of buying, easing fears about constraints on spending,
and sent the major stock indexes to session highs.
U.S. crude futures <CLc1>, which initially had jumped above
$120 a barrel, turned negative after the International Energy
Agency pledged to help with additional supply if Tropical Storm
Gustav damages oil and natural gas facilities in the Gulf of
Mexico. For details, see [].
FINANCIALS LEAD
Financial shares powered the day's rally amid optimism
about mortgage finance companies Fannie Mae <FNM.N> and Freddie
Mac <FRE.N> after Fannie reshuffled its top management in a
move to better implement a plan to preserve capital and cut
losses.
The management shake-up "shows that Fannie Mae is trying to
get the ship moved in the right direction," said Arthur Hogan,
chief market analyst at Jefferies & Co. in Boston.
On Thursday, Lehman Brothers said Fannie's capital and
reserves positions are better than market perceptions, adding
that it may not need more externally raised capital.
[]
Fannie shares rose 7.4 percent to $6.99. Freddie shares
rose 10.1 percent to $5.25.
Also helping financial services companies, bond insurer
MBIA Inc said late on Wednesday that it plans to reinsure a
$184 billion portfolio of investment-grade U.S. public finance
credits.
MBIA was the day's biggest percentage winner among Big
Board stocks, with its shares jumping 25 percent to $15.01.
A gauge on financial shares <.GSPF> soared 3.12 percent.
Shares beyond the financial sector also participated in the
rally.
Upscale U.S. jeweler Tiffany & Co <TIF.N> shares rose 8.7
percent to $43.14 after it posted a higher-than-expected profit
and raised its full-year forecast on strong sales overseas.
Shares of heavy equipment maker Caterpillar <CAT.N> gained
2.6 percent at $71.38 on the improved economic backdrop and
remarks from its chief executive, Jim Owens, who said its
business in China could double by 2010.
The slide in oil, which had risen the past three sessions,
hurt energy shares. A index on energy companies <.GSPE> was
down 1.8 percent.
The government on Thursday also reported that the number of
U.S. workers filing new claims for jobless benefits fell to a
level that was a touch lower-than-expected.
(Additional reporting by Kristina Cooke; Editing by Leslie
Adler)
