By Rodrigo Campos
NEW YORK (Reuters) - Stocks on Wall Street rose Wednesday led by the energy sector as oil prices rallied and as financials gained on the increasing likelihood of an interest rate hike after strong economic data.
Activity in the U.S. services sector hit an 11-month high in September, an encouraging sign for economic growth that may nudge the Federal Reserve toward an interest rate increase before the year ends.
Banks <.SPXBK>, seen benefiting from an eventual rate hike, gained 2 percent as a group -the most for any day in two months.
"We’re taking a little victory lap today after the surprisingly good economic data,” said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.
She said expectations are rising for a pickup in corporate earnings and “there are good signs in the economy."
Traders priced in a near 65 percent chance of a Fed rate hike in December after the services data, according to the CME Group's FedWatch tool. The chances had dipped earlier in the day after data showed the U.S. private sector added slightly fewer jobs than expected last month.
The higher chance of a Fed rate hike hurt rate-sensitive sectors like real estate <.SPLRCR>, which fell 1.9 percent.
"Looks as if we may have a rate increase some time in 2016 or early 2017," Forrest said. "The recent rise in the 10-year yield tells you that if you've been buying some dividend-paying stocks for yield alone, you may be in trouble."
The yield on the benchmark Treasury note <US10YT=RR> touched 1.73 percent after having dipped under 1.54 percent on Friday.
The energy sector of the S&P 500 <.SPNY> added 1.4 percent as both Brent <LCOc1> and U.S. crude <CLc1> oil rose to multi-month highs after data showed a bigger-than-expected draw in U.S. inventories.
The Dow Jones industrial average <.DJI> rose 112.58 points, or 0.62 percent, to 18,281.03, the S&P 500 <.SPX> gained 9.24 points, or 0.43 percent, to 2,159.73 and the Nasdaq Composite <.IXIC> added 26.36 points, or 0.5 percent, to 5,316.02.
Just over 7 billion shares changed hands in U.S. exchanges, compared with the 7.2 billion daily average over the last 20 sessions.
Twitter <TWTR.N> rose 5.7 percent to $24.87 after the Wall Street Journal reported it is expected to field bids this week.
Shares of Booz Allen Hamilton <BAH.N> fell 3.8 percent to $30.31 after news broke that an NSA contractor who worked for Booz Allen was arrested in August and charged with stealing highly classified information.
Booze Allen is the consulting firm that employed Edward Snowden when he revealed the collection of metadata by the NSA in 2013.
Salesforce <CRM.N> dropped 5.8 percent to $68.42 after a Mizuho analyst raised concerns over the company's eventual bid for Twitter.
Advancing issues outnumbered declining ones on the NYSE by a 1.55-to-1 ratio; on Nasdaq, a 2.19-to-1 ratio favored advancers.
The S&P 500 posted 24 new 52-week highs and five new lows; the Nasdaq Composite recorded 117 new highs and 20 new lows.
(Reporting by Rodrigo Campos; Editing by James Dalgleish)