* Retailers offset housing data; stocks rebound
* Home Depot, Target, Saks profits top Wall St forecasts
* Indexes up: S&P 500 1 pct, Dow 0.9 pct, Nasdaq 1.3 pct
(Updates to close)
By Angela Moon
NEW YORK, Aug 18 (Reuters) - U.S. stocks rose on Tuesday, rebounding after sharp losses in the previous session, as better-than-expected results from big retailers encouraged investors to get 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 earnings reports offset an unexpected drop in housing starts and permits in July, sending all three major indexes up more than 1 percent in earlier trading.
The Dow Jones industrial average was up 82.60 points, or 0.90 percent, at 9,217.94. The Standard & Poor's 500 Index was up 9.94 points, or 1.01 percent, at 989.67. The Nasdaq Composite Index was up 25.08 points, or 1.30 percent, at 1,955.92.
On Monday, the S&P 500, which is up nearly 50 percent since its early March low, faced its steepest decline in seven weeks after poor results from Lowe's, the No. 2 U.S. home improvement chain. Analysts were quick to term the decline a start of a market correction.
"Today was about the recovery from yesterday's sell-off. Lowe's was disappointing, and the market balanced that off with Home Depot," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco.
"It's a healthy cycle attracting investors. We buy, then we unwind the overbought condition while the market doesn't give up ground so easily."
Financial, retail and technology stocks were the top advancers Tuesday, but gains were broad-based.
Mohamed El-Erian, however, 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.
The S&P 500 financial sector index, which suffered the most in Monday's sell-off, was up 1.92 percent.
American Express Co gained 4.3 percent to $31.69 and Bank of America closed up 2.1 percent at $16.90.
Citigroup Inc rose 3.5 percent to $4.14.
Home Depot shares rose 3.1 percent to $26.93 while its key rival, Lowe's, dropped 2.3 percent to $19.99 following a sell-off the previous day on disappointing results.
Target climbed 7.6 percent to $44.32 and Saks added 6.9 percent to $5.72. The S&P retail index gained was up 1.8 percent.
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.
Apple's shares climbed 2.8 percent to $164.01, RIM added 4.6 percent to $73.99 and Palm climbed 4.9 percent to $13.88.
Volume was light on the New York Stock Exchange, with 991 million shares changing hands, below last year's estimated daily average of 1.49 billion, while on the Nasdaq, about 1.75 billion shares traded, also below last year's daily average of 2.28 billion.
Advancing stocks outnumbered declining ones on the NYSE by a ratio of 4 to 1, while advancing stocks beat decliners on the Nasdaq by about 3 to 1.