* Insurance firms advance as Irene damage less than feared
* Banks rally on Greek deal; financials top S&P
* U.S. consumer spending rebounds, calms recession fears
* Indexes up: Dow 2.1 pct, S&P 2.5 pct, Nasdaq 2.8 pct
* For up-to-the-minute market news see [STXNEWS/US] (Adds details on Greek merger, updates prices)
By Ryan Vlastelica
NEW YORK, Aug 29 (Reuters) - U.S. stocks rallied more than 2 percent in a broad rally on Monday as a merger between two big Greek banks provided a rare bit of encouraging news out of debt-stricken Europe, while a rebound in consumer spending calmed fears of a new U.S. recession.
All 10 S&P sectors gained more than 1 percent, and only five stocks in the S&P 500 were in negative territory.
Financial stocks were the top gainers after Greek banks
Alpha
The deal consolidates the number of weak banks in the region and reduces the risk one will need to turn to the Financial Stability Fund to get more capital. In addition, the foreign investment is a sign investors view the region as undervalued.
"We'll probably need to see greater policy action in the region, but the merger needs to be done and that's why we're seeing a pause in the recent selling pressure," said David Ruff, portfolio manager at the Forward Select EM Dividend Fund in San Francisco.
Ruff added that the deal would help banks strengthen their balance sheets, "making the sector less worrisome."
Insurers also rose as property damage from Hurricane Irene was less than feared, according to early estimates. [ID:nN1E77S0H6]
Travelers Cos Inc
The Dow Jones industrial average <.DJI> jumped 230.98 points, or 2.05 percent, at 11,515.52. The Standard & Poor's 500 Index <.SPX> advanced 28.85 points, or 2.45 percent, at 1,205.65. The Nasdaq Composite Index <.IXIC> was up 69.31 points, or 2.79 percent, at 2,549.16.
Consumer spending recorded its largest increase in five months in July, supporting views the economy was not falling back into recession. And while the number of signed contracts for home sales fell 1.3 percent in July, the decline matched forecasts and managed to top year-ago levels. [ID:nN1E77S0BS]
"Consumer spending has been in focus in the past couple of months, so any kind of strength there is a good thing for the economy and the market," said Brian Lazorishak, portfolio manager at Chase Investment Counsel in Charlottesville, Virginia.
Traders were also relieved that hurricane damage in New York City, especially in lower Manhattan, was not as bad as had been feared. The New York Stock Exchange and the Nasdaq opened on schedule, but trading volume was light as many workers were stuck at home with many commuter rail and bus lines not operating. [ID:nN1E77S005]
The S&P financial index <.GSPF> was up 3.7 percent and the
KBW Banks index <.BKX> added 3.8 percent. Bank of America Corp
U.S.-listed shares of National Bank of Greece
LDK Solar Co LTD