Profits, takeover bid boost Wall Street

NEW YORK (Reuters) - Stocks rose on Tuesday as agriculture stocks got a lift from M&A talk and after stronger-than-expected profits from retailers Wal-Mart and Home Depot.

The materials sector handily outperformed the broad market after BHP Billiton Ltd made an unsolicited $38.6 billion takeover bid for Potash Corp of Saskatchewan Inc , which was rejected by the world's largest fertilizer maker as "grossly inadequate.

Potash's U.S.-traded stock surged 25.4 percent to $140.68. Fertilizer producer CF Industries jumped 6.6 percent to $90.18 after Goldman Sachs upgraded the stock, while the materials sector <.GSPM> gained 2.1 percent.

"The increase in M&A shows CEO's and CFO's have more confidence in the outlook for the economy and are willing to start to deploy some of the high cash balances, which have built up in recent months," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

The Dow was buoyed by gains in Wal-Mart Stores Inc and Home Depot Inc after both companies reported profit that topped expectations. Wal-Mart was up 1.8 percent at $51.34 and Home Depot gained 2.6 percent to $28.10.

Even so, both companies reported sales that missed expectations and Wal-Mart noted consumer sentiment is still soft. Tepid consumer spending remains one of the biggest headwinds for a sustainable recovery.

The Dow Jones industrial average <.DJI> gained 123.97 points, or 1.20 percent, to 10,425.98. The Standard & Poor's 500 Index <.SPX> rose 15.26 points, or 1.41 percent, to 1,094.64. The Nasdaq Composite Index <.IXIC> climbed 34.07 points, or 1.56 percent, to 2,215.94.

In economic news, U.S. industrial production expanded in July at twice the clip that was expected, a bright spot after recent data has pointed to a slowdown in growth. Industrial shares were higher, with Caterpillar up 2.2 percent at $69.97.

Other data was mixed with housing starts rising, though to a weaker level than expected in July, while prices paid at the farm and factory gate rose in July in line with expectations. However, investors focused more on producer prices excluding volatile food and energy, which increased at a surprising 0.3 percent.

Data pointing to a slowdown in growth has hampered the market of late as investors reassess their expectations for the economy. Low volume has also suggested investors see little reason to get into the market.

"The economic news is not all that positive and it's hard to get too excited about the economic outlook right now," said Sheldon.

(Reporting by Leah Schnurr; Editing by Kenneth Barry)

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