Stocks rose on Tuesday, led by financials, as better-than-expected bank earnings overshadowed new worries about the crisis in Europe fueled by a warning over France's credit rating.

The three major indexes spent the early part of the session in negative territory before banks led the way higher. The KBW bank index <.BKX> advanced nearly 4 percent.

Volatility was still evident as U.S. stocks suffered their worst loss in two weeks on Monday on the heels of its first two-week rally since July.

Bank of America Corp jumped 5.8 percent to $6.38 after it reported a third-quarter profit boosted by accounting gains and asset sales.

Goldman Sachs Group Inc added 1.9 percent to $98.78 after reporting a rare loss but said it was moving to cut costs, including employee pay.

State Street Corp climbed 6.6 percent to $36.11 after its net income rose, lifted by tax benefits and double-digit gains from servicing and investment management fees. ]

Part of the reason financials are acting better than people were largely expecting ... is because though earnings are by historic standards very, very disappointing, they are not as bad as a lot of the naysayers were expecting them to be, said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey.

There was some genuine panic the banks, the financials, were going to start reporting earnings that were going to just undermine any shred of confidence and any kind of sustainable rebound and really the earnings haven't done that.

The Dow Jones industrial average <.DJI> gained 66.26 points, or 0.58 percent, to 11,463.26. The Standard & Poor's 500 Index <.SPX> rose 10.79 points, or 0.90 percent, to 1,211.65. The Nasdaq Composite Index <.IXIC> climbed 18.94 points, or 0.72 percent, to 2,633.86.

But International Business Machines Corp fell about nearly 5 percent to $177.40 after Big Blue's earnings beat failed to stem worries about a slowdown in technology spending.

Gains were kept in check after Moody's cautioned it may slap a negative outlook on France's Aaa credit rating in the next three months if costs from helping to bail out banks and other euro zone members stretch its budget too thin.

Another negative was data showing China's growth slowed in the third quarter to its weakest pace since early 2009. Gross domestic product rose 9.1 percent in the quarter from a year earlier, but was down from 9.5 percent in the previous period.

China slowing and now Moody's is possibly warning on France, add that to the list of the European countries, said John Papa, President of Diversified Planning Strategies in Caldwell, New Jersey.

The news is not great, that is dragging down the markets, which you have to expect is going to happen.

(Reporting by Chuck Mikolajczak; editing by Jeffrey Benkoe)

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