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US STOCKS-Wall St gains on hopes for central bank moves
* Germany did not discuss EU bond-buying plan at G20
* FOMC begins two-day policy meeting
* Oracle climbs after results
* Dow up 0.9 pct, S&P up 1.1 pct, Nasdaq up 1.2 pct (Updates to late afternoon trade)
By Angela Moon
NEW YORK, June 19 (Reuters) - U.S. stocks rose on Tuesday on hopes that the Federal Reserve's policymakers will agree on extending stimulus measures as the economy struggles to recover.
A sharp decline in German business sentiment, alongside stubbornly high Spanish bond yields, raised expectations for market-friendly stimulus from European policymakers as well.
"We went to the highs of the day on that, and we have the Fed tomorrow. This is a bailout, central bank largesse bounce, and we'll see what follow-through (occurs) after the Fed tomorrow and whatever becomes of the ESM," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.
British media reports earlier had said German Chancellor Angela Merkel was poised to use Europe's dual bailout funds, known as the European Financial Stability Facility or the EFSF and the European Stability Mechinism or the ESM, to buy up the debt of countries like Italy and Spain and had discussed the plans at the summit. But a German government official told Reuters there was no discussion at a G20 summit in Mexico this week about using Europe's rescue funds to buy up the bonds of stricken members of the euro zone.
The Dow Jones industrial average was up 112.20 points, or 0.87 percent, at 12,854.02. The Standard & Poor's 500 Index was up 14.27 points, or 1.06 percent, at 1,359.05. The Nasdaq Composite Index was up 35.10 points, or 1.21 percent, at 2,930.43.
The S&P 500 has gained more than 7 percent from a five-month low hit earlier in June, and is on track to close above its 50-day moving average for the first time in seven weeks. But the sharp gains also leave the market vulnerable if the outcome of Wednesday's Fed meeting doesn't meet market expectations.
Growth-related stocks led the rally, with the S&P materials sector index up 2 percent and the financial sector index up 1.7 percent. U.S. Steel Corp jumped 7.6 percent to $19.80 and Bank of America added 4.6 percent to $8.12.
On Tuesday, the Federal Open Market Committee began the first day of a two-day meeting on interest-rate policy. The meeting got under way with expectations increasing that the U.S. central bank may extend its "Operation Twist" program, its effort to drive down long-term borrowing costs.
"People are anticipating some type of response from the Fed tomorrow and are buying or covering shorts in anticipation of that," said Paul Zemsky, head of asset allocation at ING Investment Management in New York. "There's a risk the market gets disappointed."
Spain's government bond yields eased slightly after it raised 3 billion euros at a short-term debt sale, with the higher yields enticing investors. However, with its 10-year bond yield above 7 percent, investors worried over how long the euro zone's fourth-largest economy can survive without foreign help.
In Greece, parties promised to form a coalition government soon and seek concessions from the country's EU and IMF lenders on an austerity program that is both keeping the country away from bankruptcy and mired in a very long recession.
Oracle Corp rose 3.3 percent to $28.01 a day after it reported stronger-than-expected quarterly profit, releasing the results three days ahead of schedule after news of the pending departure of a senior sales executive fueled concerns that business was stagnating.
Walgreen Co tumbled 5.6 percent to $30.17 after the pharmacy chain reported quarterly earnings and said it would buy a 45 percent stake in Alliance Boots for $6.7 billion in a cash-and-stock deal.
FedEx Corp rose 3 percent to $91.17 after the package delivery company reported fourth-quarter earnings and provided an outlook for the first quarter and 2013.
Shares of J.C. Penney dropped 8.3 percent to $22.30 a day after its president abruptly left the department store operator following a botched advertising campaign.
Economic data showed U.S. housing starts fell in May from a 3-1/2 year high, but permits to build new homes rose sharply, suggesting the housing recovery remains on track. (Reporting By Angela Moon; Additional reporting by Edward Krudy; Editing by Jan Paschal)
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