Wall Street gains, led by retail sector

Stocks rose on Tuesday in a sharp turnaround from earlier losses, led by gains in retail stocks after strong results from Home Depot , the world's largest home improvement company.

Traders said rumors that Spain may be close to asking for a sovereign bailout may have boosted buying.

Dow component Home Depot Inc was the top gainer on the S&P 500, climbing 4.5 percent to $63.90 after reporting earnings that beat expectations and raising its outlook. Rival retailer Lowes Companies also gained, up 1.1 percent to $32.32.

Energy stocks, which were trading lower earlier, also turned around sharply. The S&P 500 energy sector index rose 0.7 percent.

Technology shares were little changed and earlier were under pressure from weakness in Microsoft after the executive most widely tipped to be the next chief executive left the company.

The Dow Jones industrial average was up 74.71 points, or 0.58 percent, at 12,889.79. The Standard & Poor's 500 Index was up 7.49 points, or 0.54 percent, at 1,387.52. The Nasdaq Composite Index was up 1.24 points, or 0.04 percent, at 2,905.50.

The euro zone debt crisis continued to roil global markets.

"The intraday moves are pretty big today as we continue to be in a rumor-filled market, mainly news out of Europe," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, Ohio.

Despite the gains, the S&P 500 was still down nearly 2 percent for the month on lingering concerns about the "fiscal cliff" in the U.S., and debt crisis in the euro zone.

The fiscal cliff is a series of budget cuts and tax hikes that begin to take effect in the new year. Market participants worry that if no deal is reached to avoid going over the cliff, the economy could fall back into recession.

Concerns over this possibility contributed to the S&P's worst week since June last week, with no sign of a bottom despite a drop of almost 3 percent over the past two weeks.

"The attention in the equity markets has shifted more noticeably to the possibility that the U.S. fails to properly handle the so-called fiscal cliff," said Ari Wald, analyst at PrinceRidge Group. He said equities in developed countries have been outperforming U.S. stocks despite worries about the euro zone's financial health.

In other earnings news, AK Steel Holding Corp shares fell 10 percent to $4.91 after forecasting a fourth-quarter loss, while Michael Kors Holdings gained 3.9 percent to $52.58 after raising its outlook.

(Editing by Kenneth Barry)