Bets on Spanish bailout lift Wall Street

NEW YORK (Reuters) - U.S. stocks were flat to slightly higher on Tuesday on bets Spain will soon ask the euro zone for a bailout, moving the region a step closer to resolving its three-year-old debt crisis.

Major averages were only marginally higher, however, as the equity market has been unable to sustain a rally in recent days.

If Madrid were to seek a rescue, it would trigger European Central Bank buying of its bonds and help to ease U.S. investors' nervousness about the euro zone's impact on the U.S. economy.

"I think the market feels that we are closer to some type of action and resolution in terms of the Spanish problem," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. "That's certainly helping markets this morning."

The Dow Jones industrial average <.DJI> slipped 20.69 points, or 0.15 percent, to 13,494.42. The Standard & Poor's 500 Index <.SPX> gained 0.61 point, or 0.04 percent, to 1,445.10. The Nasdaq Composite Index <.IXIC> added 3.00 points, or 0.10 percent, to 3,116.53.

In spite of Spain's apparent readiness to ask for help, Germany has signaled that Madrid should hold off on making its request, according to European officials on Monday.

JPMorgan Chase & Co was sued by New York's attorney general on Monday in the first action to come out of a working group created by President Barack Obama to go after wrongdoing that led to the financial crisis. The civil fraud lawsuit centered on mortgage-backed securities packaged and sold by Bear Stearns, which JP Morgan acquired.

JPMorgan shares edged down 0.8 percent to $40.65.

Chrysler said September vehicle sales were up 12 percent from a year earlier and the highest for the month since 2007. Shares of majority stakeholder Fiat rose 1.2 percent in Milan.

PetSmart Inc shares added 2.4 percent to $69.15 after S&P Dow Jones Indices said after Monday's close the company will replace Sunoco in the S&P 500 on October 4.

Shares of Express Inc fell 17.5 percent to $12.39 after the apparel retailer revised its third-quarter outlook.

Shares of ArQule Inc tumbled 57 percent to $2.14 after the biotechnology company and Japan's Daiichi Sankyo <4568.T> said they will end a late-stage trial of their experimental lung cancer drug.

(Reporting by Rodrigo Campos; Editing by Kenneth Barry)

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