By Rodrigo Campos
NEW YORK (Reuters) - Financial and commodity-sector stocks led the S&P 500 higher in a low-volume session on Monday after consumer spending rose for a fourth straight month, pointing to a pick-up in U.S. economic growth.
Investors continued to digest comments from U.S. Federal Reserve officials on Friday. After Fed Chair Janet Yellen said the case for a rate hike before the end of the year was strengthening, Vice Chair Stanley Fischer seemed to indicate not only the possibility of a tightening move in September but a second one in December.
Besides the outperformance from cyclical sectors, utilities <.SPLRCU> also rose, clawing back from a sell-off in the sector on Friday, which was its largest in four months.
"Utilities are up on a bounce," said Art Hogan, chief market strategist at Wunderlich Securities in New York.
He said investors were taking Fischer's comments as less hawkish than initially thought, while acknowledging there has been a turn for the better in U.S. economic data in recent weeks that could support tighter monetary policy.
The U.S. Commerce Department said that consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.3 percent last month after a 0.5 percent gain in June.
"There is a rethink of Fischer's two rate hikes," said Hogan, but "the Fed is certainly trying to get the market ready for a rate hike."
Financials <.SPSY>, a sector that has underperformed most of the year, was the best performer on the S&P 500, with Wells Fargo <WFC.N> up 2.2 percent.
The sector typically rises with talk of higher rates, on the expectation that banks' income could rise as they charge more for loans. However, the correlation is not direct as it requires the yield curve, which has been flattening of late, to steepen.
Wunderlich's Hogan said the gains in bank stocks are likely from traders who are short, as they buy in to cover their bets.
The Dow Jones industrial average <.DJI> rose 107.59 points, or 0.58 percent, to 18,502.99, the S&P 500 <.SPX> gained 11.34 points, or 0.52 percent, to 2,180.38 and the Nasdaq Composite <.IXIC> added 13.41 points, or 0.26 percent, to 5,232.33.
The S&P closed 0.45 percent below its record high set earlier this month. Data last week showed speculators are the most net long S&P e-mini futures contracts <ESc1> in three years.
Stock trading volume was the weakest so far this year at just below 5 billion shares, compared with the average of 6.1 billion over the past 20 days. It is expected to remain low through the week, the last of the U.S. summer vacation season.
Shares of private prison operators fell after the Department of Homeland Security said it will evaluate whether the agency should continue to contract with private prisons, following a decision announced Aug. 18 by the Justice Department to phase out contracts with private operators.
Corrections Corp of America <CXW.N> fell 4.1 percent to $16.79 and The GEO Group <GEO.N> lost 3.0 percent to $21.25.
Apple ended down 0.1 percent at $106.82. The company could face over 1 billion euros in back taxes as the European Commission was set to rule on Tuesday against Ireland's tax dealings with Apple.
Caesars Entertainment Corp <CZR.O> tumbled 15.7 percent to end at $6.35 after a U.S. judge cleared the way for billions of dollars in bondholder lawsuits against the casino group to proceed.
Advancing issues outnumbered declining ones on the NYSE by a 2.60-to-1 ratio; on Nasdaq, a 1.68-to-1 ratio favored advancers.
The S&P 500 posted 27 new 52-week highs and 2 new lows; the Nasdaq Composite recorded 121 new highs and 20 new lows.
(Reporting by Rodrigo Campos; Editing by Dan Grebler)