NEW YORK - US stocks rose on Tuesday as Fannie Mae's reassuring comments about the credit and housing markets buoyed financial shares, while record crude oil prices lifted shares of energy companies.

Speculation that Microsoft could resume takeover talks with Yahoo fed a rebound in technology shares. Yahoo gained 5.5 per cent, while Microsoft rose 2.1 per cent, leading the S&P 500's advance.

After an early retreat, the session turned positive when top executives of Fannie Mae, the largest US home finance company, said the worst of the credit market turmoil erupting from the real estate slowdown may have passed. That mitigated earlier concern about its huge quarterly loss, and propelled a broad rally in financial stocks.

Oil struck above US$122 (S$165) a barrel for the first time, carrying energy shares higher with it and outweighing a retreat in sectors sensitive to high fuel costs, such as airlines and retailers.

'When I came to work today, we thought Fannie Mae's stock will be trading south of US$25, but somehow the investing public got news that they had a pretty positive conference call,' said Ms Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets in Baltimore, Maryland.

'There's a lot of people that are eyeing the financials right now, so if you're going to play the financials, Fannie Mae and Freddie Mac have to be among them.'

The Dow Jones industrial average finished up 51.29 points, or 0.40 per cent, at 13,020.83. The Standard & Poor's 500 Index ended up 10.77 p oints, or 0.77 per cent, at 1,418.26. The Nasdaq Composite Index closed up 19.19 points, or 0.78 per cent, at 2,483.31.

Immediately after the closing bell, there was more encouraging news that could help stocks extend their advance.

Walt Disney posted a stronger-than-expected quarterly profit, sending its shares up more than 3 per cent in after-hours trade from their close at US$33.73 on the New York Stock Exchange.

Disney, one of the world's largest media companies and owner of the ABC television network, ESPN all-sports cable TV network and Disney theme parks in Florida and southern California, is seen as a bellwether of consumer spending.

Cisco Systems' shares jumped more than 2 per cent after the bell from their Nasdaq close of US$26.33 as the network equipment maker also posted a profit that topped estimates.

In the regular session, Fannie Mae shares finished at US$30.81, while Freddie Mac shares closed at US$27.33. Other financial standouts were insurer American International Group, which rose 2.1 per cent to US$48.40, and JPMorgan Chase, the No. 3 US bank, whose stock added 0.4 per cent to US$48.20.

The optimism from Fannie Mae's comments also contributed to a rise in the shares of home builders, with the Dow Jones home construction index up 2 per cent for the day.

Shares of DR Horton, the largest US home builder, jumped 5.5 per cent to US$16.85 even as the company posted a quarterly loss of US$1.3 billion and halved its dividend.

Energy shares rose after US crude oil hit a record above US$122 a barrel. A stronger-than-expected profit from independent oil and gas company Anadarko Petroleum Corp also buoyed the energy sector.

Exxon Mobil shares rose 0.6 per cent to US$90.07, while ConocoPhillips climbed 1.8 per cent to US$88.74 and Chevron's shares gained 1.3 per cent to US$96.87, while Anadarko shares climbed 9.4 per cent to US$74.53.

Shares of oil services company Schlumberger jumped 2 per cent to US$103.58. The oil index shot up 3.3 per cent.

Investment bank Goldman Sachs said in a research note that the price of oil could shoot up to US$200 a barrel within the next two years as part of a 'super-spike' driven by poor growth in oil supplies.

'Energy prices are going to stay high until - a) we get some production on line, which there's none that I know of - or b) until we have a serious recession,' said Ms Sasha Kostadinov, portfolio manager at Shaker Investments in Cleveland, Ohio.

Microsoft and Yahoo were both among the Nasdaq's top five advancers as speculation continued that pressure from Yahoo's shareholders would revive takeover talks.

Shares of Microsoft, which abandoned its bid for Yahoo at the weekend, ended at US$29.70, while Yahoo closed at US$25.72.

But higher energy costs threatened to crimp consumer spending. Wal-Mart Stores, the world's biggest retailer, was the top drag on the Dow. Wal-Mart's stock fell1.1 per cent to US$56.35.

On the New York Mercantile Exchange, June crude settled at US$121.84 a barrel, up US$1.87, or a gain of 1.56 per cent for the session. Earlier, NYMEX June crude climbed as high as a record US$122.73 a barrel, which eclipsed Monday's intraday record of US$120.36.

Compared with a year ago, US crude oil futures prices are up US$59.91 a barrel - or almost 97 per cent.