US STOCKS-Wall St 'wants to go up'; retailers, tech lead gains

* Home Depot, Target, Saks profits top Wall St forecasts

* Retailers offset weak U.S. housing data

* Indexes up: S&P 500 1 pct, Dow 0.9 pct, Nasdaq 1.2 pct (Updates to afternoon, changes byline)

By Angela Moon

NEW YORK, Aug 18 (Reuters) - U.S. stocks rose on Tuesday, erasing some of the sharp losses in the previous session as better-than-expected results from big retailers encouraged investors' back into the market.

Results at consumer giants Home Depot Inc , Target Corp and upscale department store operator Saks Inc were helped by cost-cutting as revenue growth remained slack. That trend has dominated earnings season, but investors generally approved, bidding stocks higher.

The results from retailers offset a surprise drop in housing starts and permits in July, sending the broader S&P 500 index and the tech-heavy Nasdaq up more than 1 percent.

The Dow Jones industrial average <.DJI> was up 90.01 points, or 0.99 percent, at 9,225.35. The Standard & Poor's 500 Index <.SPX> was up 10.56 points, or 1.08 percent, at 990.29. The Nasdaq Composite Index <.IXIC> was up 25.72 points, or 1.33 percent, at 1,956.56.

On Monday, the S&P 500, which is up nearly 50 percent since its early March low, faced its steepest decline in seven weeks, a drop some analysts were quick to call the start of a market correction.

"Some bounce back was expected after a decent pullback yesterday. The market took (earnings) reports as being better than they actual were, because it wants to go up," said Steve Goldman, market strategist at Weeden & Co in Greenwich, Connecticut.

"People also shrugged off the data for same reason. The market clearly has an upside bias."

Financial, retail and technology stocks were the top advancers Tuesday, but gains were broad-based. The Nasdaq outpaced the other indexes after RBC highlighted investment opportunities in the smartphone market and raised its price target on shares of Apple Inc , Research in Motion Ltd and Palm Inc . [ID:nBNG257671]

Mohamed El-Erian, the chief executive of bond fund manager Pacific Investment Management Co, told Reuters Television on Tuesday that the rally in U.S. stock markets has topped out, as valuations are running ahead of fundamentals.

Tuesday's results from retailers were in sharp contrast to those of Lowe's Cos , which weighed on investors a day earlier. Lowe's, the No. 2 U.S. home improvement chain and key rival of Home Depot, was down 2.3 percent at $19.99.

Home Depot shares rose 3.3 percent to $26.97, Target climbed 7.5 percent to $44.3 and Saks added 6.7 percent to $5.71. The S&P retail gained <.RLX> was up 1.7 percent.

Another key earnings report will come after the market closes. Investors will watch Hewlett-Packard Co , seen as a bellwether for the technology sector, for a pickup in corporate spending. The shares rose 1.5 percent to $43.76.

Following the RBC comments, Apple's shares climbed 2.3 percent to $163.26, RIM added 4.2 percent to $73.68 and Palm climbed 4 percent to $13.76. (Reporting by Angela Moon; Editing by Padraic Cassidy)