Markets up more than 1 pct on banks, energy

NEW YORK (Reuters) - Stocks advanced more than 1 percent on Wednesday as a bullish earnings forecast by institutional investor State Street Corp lifted bank shares and higher crude oil prices boosted the energy sector.

State Street, which also provides services to banks, rose 10 percent after it forecast second-quarter operating earnings that were sharply above expectations. Banks rebounded from heavy losses in recent weeks, with the KBW bank index <.BKX> up 2.5 percent.

"Having a bank give this kind of preannouncement is very encouraging, and it's giving a more positive tone to the market in general," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

The Dow Jones industrial average <.DJI> was up 126.24 points, or 1.30 percent, at 9,869.86. The Standard & Poor's 500 Index <.SPX> was up 14.21 points, or 1.38 percent, at 1,042.27. The Nasdaq Composite Index <.IXIC> was up 26.67 points, or 1.27 percent, at 2,120.55.

Energy shares were also among the day's gainers as August crude futures advanced 2.3 percent to $73.59 per barrel, supported by expectations upcoming data would show a fall in U.S. crude inventories. The S&P energy index <.GSPE> climbed 1.8 percent.

State Street shares rose to $36.64 while rivals Northern Trust Corp gained 5 percent to $48.14 and Bank of New York Mellon Corp was up 5 percent to $25.87.

Like banks and energy, the broader market has been pressured in recent weeks as concerns persist about the strength of the global economy. The S&P has fallen around 15 percent since a recent peak on April 23 and is down 7.5 percent since the start of the year.

"The market is so oversold that we were due to get a bounce like today's," said Paul Hickey, a co-founder of Bespoke Investment Group LLC in Harrison, New York.

Hickey noted that markets were also up more than 1 percent in Tuesday's session, though they later cut those gains to trade in only modestly higher territory.

"Volume has been so light that there's a great deal of volatility that's also impacting trading," he said.

A very bearish head-and-shoulder reversion pattern has formed on the S&P 500 with 1,041 as the neckline, which hints at a much lower target if the index breaks support, Phil Smith of Reuters said on Reuters TV.

UBS lowered its full-year forecast on the S&P to 1,150 from 1,350. The firm said the reduced view reflected modestly weaker earnings growth and longer-term secular headwinds.

In earnings news, Family Dollar Stores Inc tumbled 7.6 percent to $36.43 after it forecast fourth-quarter earnings below expectations.

Among its discount retailer peers, Dollar Tree Inc slipped 2 percent to $42.07 while BJ's Wholesale Corp was off 1.4 percent at $42.61.

BP Plc Chief Executive Tony Hayward met with officials from Abu Dhabi's investment authority as speculation mounted the sovereign fund would make a fresh investment. BP's U.S.-listed shares rose 3.3 percent to $32.96.

(Reporting by Ryan Vlastelica; Editing by Kenneth Barry)