(Reuters) - Stocks rose on Tuesday as improved sentiment about growth prospects in Chinaovershadowed recent credit downgrades in Europe and a mixed bag of big bank earnings.

China's economy expanded at the weakest pace in 2-1/2 years, data showed, suggesting officials may try to boost growth in the near term by tweaking monetary policy.

Bank earnings offered a mixed picture, with Wells Fargo & Co (WFC.N) posting a 20 percent jump in quarterly profit, while Citigroup Inc (C.N) said earnings slid 11 percent. Wells Fargo was up 1.8 percent to $30.14, while Citigroup lost 6.3 percent to $28.84.

The KBW Bank index .BKX, up nearly 11 percent for the year, slipped 0.2 percent.

Investors looked past Standard & Poor's credit downgrade of the euro zone's rescue fund, relieved it was not more severe. The move came after Friday's widely expected downgrade of a number of euro zone countries.

"The threat of the euro zone appears ever so slowly to be easing, and China's data left investors feeling pretty warm for the prospect of" more favorable monetary policy, said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York.

"All in all, there's a pretty decent backdrop to the investing climate, and something like Citigroup isn't enough to change the tone of the day."

The Dow Jones industrial average .DJI was up 113.86 points, or 0.92 percent, at 12,535.92. The Standard & Poor's 500 Index .SPX was up 10.74 points, or 0.83 percent, at 1,299.83. The Nasdaq Composite Index.IXIC was up 29.18 points, or 1.08 percent, at 2,739.85.

Carnival Corp (CCL.N) slumped 13.9 percent to $29.52 as its Italian unit, Costa Crociere, struggled to locate missing passengers after a cruise liner capsized. Fellow cruise operator Royal Caribbean Cruises Ltd (RCL.N) dipped 3.7 percent to $27.77.

The benchmark S&P moved past 1,300 on an intraday basis for the first time since August 1. Analysts said a move past that resistance point could trigger more buying.

A gauge of manufacturing in New York State rose to its highest level in nine months, keeping in line with the trend of modest improvement in U.S. economic data.

Information technology shares were the biggest gainers of the day, led by Applied Materials Inc (AMAT.O). RBC upgraded the stock to "outperform," and the shares rose 3.4 percent to $11.89.

KU6 Media Co Ltd (KUTV.O) shares more than doubled to $3.01 after it signed a deal to offer its videos on Google Inc's (GOOG.O) YouTube website.

(Reporting By Ryan Vlastelica)

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