Wall Street rises after retail data, Home Depot profit

NEW YORK (Reuters) - Wall Street advanced on Tuesday after retail sales data suggested consumer spending may lift economic growth and Home Depot raised its profit forecast, saying it saw improvement in the housing market.

Both Home Depot's earnings and the retail data, which showed retail sales rose for the first time in four months, come after recent housing and jobs numbers lifted hopes that a slowdown in the economy may only be temporary.

The better retail sales data also dovetailed with strong earnings reports from niche retailers like Estee Lauder , which jumped nearly 10 percent.

"Definitely Wall Street will applaud this data," said Todd Schoenberger, managing principal at the BlackBay Group in New York. "Retail sales were strong, showing how smart retailers were with their back-to-school promotions."

However, gains were modest after the S&P 500 rose for seven of the past eight sessions and the perception of risk from Europe's debt crisis was still running high.

Home Depot Inc , world's largest home improvement chain, gained 3.5 percent to $54.67 as the top boost to the Dow after the company reported a higher-than-expected quarterly profit and kept a tight lid on costs to offset weakness in sales.

The Dow Jones industrial average gained 37.28 points, or 0.28 percent, to 13,206.71. The Standard & Poor's 500 Index rose 4.40 points, or 0.31 percent, to 1,408.51. The Nasdaq Composite Index added 10.27 points, or 0.34 percent, to 3,032.79.

The S&P 500 is up 12 percent this year after rallying 10 percent from yearly lows reached in June. The rally, which has brought the index to within a stone's throw of new four-year highs, has also left investors looking for new catalysts to move the market higher.

Home Depot is seeing improvements in California and Florida, states that were hit hard by the housing downturn, according to Chief Executive Officer Frank Blake. The comments helped lift housing stocks, and the Dow Jones Home Construction index rose 1.2 percent.

Reports from smaller retailers supported the thesis of robust consumer spending that may help lift overall growth.

Michael Kors Holdings Ltd surged 13.4 percent to $48.05 after the apparel company reported higher-than-expected quarterly profit and raised its full-year profit forecast.

Estee Lauder jumped 9.1 percent to $59.96 after the cosmetics and fragrance maker reported a higher-than-expected quarterly profit and forecast more sales growth this year.

Saks Inc reported a narrower-than-expected second quarter loss on Tuesday as sales gains defied what the luxury retailer said was a tough economy, and the retailer stuck to its sales forecast for the second half of the fiscal year. Shares climbed 6 percent to $11.51.

Retail sales rose 0.8 percent in July, the biggest increase since February. Economists polled by Reuters had expected a 0.3 percent increase. The S&P retail index gained 1 percent.

"The retail sales is good, and it just continues the trend right now for the S&P to go higher," said Frank Lesh, a futures analyst and broker at FuturePath Trading LLC in Chicago.

"It keeps us going for now. I didn't see anything here that said sell your longs or get out; if anything, it said buy."

Separately, producer prices rose in July at the fastest pace in five months on higher costs for light trucks, pharmaceutical drugs and cigarettes, although falling energy prices pointed to muted inflation pressures.

Groupon Inc tumbled 23.6 percent to $5.77 after the world's largest online daily deals provider missed quarterly revenue expectations and gave a cautious profit outlook.

Discount retailer TJX Cos Inc , owner of the Marshalls and T.J. Maxx chains, raised its full-year profit forecast on a rise in its second-quarter sales, and its shares edged up 1.4 percent to $44.85.

(Additonal reporting by Ryan Vlastelica; Editing by Kenneth Barry)