S&P gains as financials' outlook improves; Dow dips

NEW YORK (Reuters) - The S&P 500 rose on Wednesday as investors snapped up shares of bailed-out financial companies on hopes the sector may be poised for a recovery as the U.S. economy improves, while a drop in oil producer Chevron's stock pushed the Dow slightly lower.

In a second day of big gains for a handful of financials, Citigroup shot up 3.1 percent to $3.94, while shares of insurer American International Group Inc jumped 8 percent to $35.38.

"It's a combination of both underlying fundamentals improving and capital markets opening up even further," said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank Private Wealth Management, in New York.

"The fact that we are seeing the market improve in general is helping out financials."

At Tuesday's close, the Standard & Poor's 500 Index <.SPX> was up 68 percent from a year ago, when it hit a 12-1/2-year closing low.

The Dow Jones industrial average <.DJI> was down 6.04 points, or 0.06 percent, at 10,558.34. But the Standard & Poor's 500 Index <.SPX> was up 3.42 points, or 0.30 percent, at 1,143.87. The Nasdaq Composite Index <.IXIC> was up 13.95 points, or 0.60 percent, at 2,354.63.

Shares of Chevron , the second-largest U.S. oil company, dropped nearly 1 percent to $73.60 and contributed the most to the Dow's decline.

U.S. crude oil futures slipped at midday, interrupting the morning's rally on data showing a decline in gasoline supplies, before rebounding slightly to trade up 9 cents at $81.61 a barrel.

In deal news, Abbott Laboratories agreed to buy Facet Biotech Corp for $27 a share late Tuesday, topping a failed bid from Biogen Idec Inc .

Abbott Laboratories' stock rose 0.8 percent to $55.24 on the New York Stock Exchange, while Facet's stock surged 66.6 percent to $27.00 on the Nasdaq.

(Reporting by Caroline Valetkevitch; Editing by Jan Paschal)

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