Stocks gained in early trading on Tuesday as Chinese data fueled the belief the government may move to stimulate growth, overshadowing recent credit downgrades in Europe and a mixed bag of big bank earnings.

China's economy grew slightly more than expected but at the weakest pace in 2-1/2 years, suggesting officials may try to boost growth in the near term by tweaking monetary policy.

Expectations are always a little irrational when it comes to China because of the track record we've seen. It's definitely supportive (for the market) and the fact of the matter is they are still the engine of growth, said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey.

Financial issues advanced as Wells Fargo & Co gained 2.7 percent to $30.40 after its quarterly profit topped expectations, offsetting an 11 percent profit drop for Citigroup Inc , which lost 3.8 percent to $29.56.

The KBW Bank index <.BKX> was up 0.3 percent and has risen nearly 11 percent for the year.

Investors appeared to look past Standard & Poor's credit downgrade of the euro zone's rescue fund, relieved the cut was not more severe. The move comes after Friday's widely expected downgrade of a number of euro zone countries.

It was just a question of when it was going to happen so it wasn't a surprise, it wasn't unexpected and that would explain why it was not disruptive, said Kenny.

The Dow Jones industrial average <.DJI> jumped 105.99 points, or 0.85 percent, at 12,528.05. The Standard & Poor's 500 Index <.SPX> was up 8.98 points, or 0.70 percent, at 1,298.07. The Nasdaq Composite Index <.IXIC> rose 23.60 points, or 0.87 percent, at 2,734.27.

The benchmark S&P moved past 1,300 on an intraday basis for the first time since August 1. The level was viewed by analysts as a resistance point that could trigger further buying once broken.

A gauge of manufacturing in New York State showed that growth picked up in January, rising to the highest level in nine months and keeping in line with the trend of modest improvement in U.S. economic data.

Carnival Corp slumped 13.7 percent to $29.63 as its Italian unit, Costa Crociere, struggled to locate missing passengers after a cruise liner capsized. Fellow cruise operator Royal Caribbean Cruises Ltd dipped 3.7 percent to $27.77.

(Reporting By Chuck Mikolajczak; editing by Jeffrey Benkoe)

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