* Lower oil prices reduce pressure on Fed's rate meeting
* Services sector shrinks, but less than expected
* Procter & Gamble beats estimates, stock higher
* Dow, S&P 500 up 1.8 percent, Nasdaq gains 1.7 percent
(Updates to midday)
By Walter Brandimarte
NEW YORK, Aug 5 (Reuters) - U.S. stocks rose on Tuesday as
a tumble in the price of oil tempered inflation concerns,
reinforcing expectations that the Federal Reserve will keep
interest rates unchanged at its meeting later in the day,
despite calls for higher rates among some board members.
Shares of planemaker Boeing <BA.N> jumped almost 5 percent
and were the biggest boost on the Dow industrials, as lower oil
prices improved the outlook for the energy-dependent air
sector.
Major manufacturers General Electric <GE.N> and Procter &
Gamble <PG.N> jumped more than 2 percent, also helped by hopes
that moderating inflationary pressures would increase consumer
spending. GE was the biggest boost on the S&P 500.
Data from the Institute for Supply Management showing the
U.S. service sector shrank less than expected in July also
supported sentiment. The ISM report included a decline in the
prices paid index. For details, see [].
U.S. crude oil futures <CLc1> fell as low as $118 per
barrel earlier, after settling at $121.41 on Monday. Oil was
trading at about $119.70 per barrel around midday.
"The factor in the market is that oil prices went down to
$118 a barrel. Oil has been overwhelmingly the major single
factor driving markets since late June. I think that is a
completely sufficient explanation," said Brian Gendreau,
investment strategist at ING Investment Management in New
York.
The Dow Jones industrial average <> gained 206.88
points, or 1.83 percent, at 11,491.03, while the Standard &
Poor's 500 Index <.SPX> rose 22.32 points, or 1.79 percent, at
1,271.33. The Nasdaq Composite Index <> climbed 38.42
points, or 1.68 percent, at 2,323.98.
The decline in oil prices may also help Fed Chairman Ben
Bernanke keep interest rates at the current level of 2 percent
for the next several months, as the credit crisis keeps the
economy in check.
But analysts expect the statement accompanying the rate
decision, due at around 2:15 p.m. (1815 GMT), to include
slightly stronger language on inflation to satisfy more hawkish
board members who have been calling for a rate increase.
Investors snapped up shares broadly, but particular
strength was evident in energy-consuming sectors, including
airlines and industrial companies. Shares of retailers, tech
and financial services companies also gained.
GE shares rose 2.6 percent to $28.91 on the New York Stock
Exchange, while shares of American International Group <AIG.N>,
the world's largest insurer, jumped 7.2 percent to $28.62.
On Nasdaq, shares of iPod maker Apple Inc <AAPL.O> climbed
2.7 percent to $157.30. According to theflyonthewall.com, UBS
started Apple with a "buy" rating.
Among retailers, shares of Wal-Mart Stores <WMT.N> , the
world's biggest retailer, rose 2.5 percent to $59.90, while
Target Corp <TGT.N> gained 4.9 percent to $47.22.
Among airlines, Continental Airlines <CAL.N> rose 8.8
percent to $15.50, as the airline index <.XAL> gained 7.34
percent.
Procter & Gamble Co <PG.N>, the world's largest consumer
products maker, posted a stronger-than-expected quarterly
profit. Its stock rose 2.34 percent to $67.37 on the NYSE.
(Editing by Leslie Adler)
