Stocks rose for a third day on Tuesday, led by utilities and other defensive sectors that may drive further gains as investors bet on profit growth and set aside concerns about weakening demand.

For now the equity market is filtering out potential problems involving euro-zone debt and speculation that the recent selloff in commodities is a harbinger of weak economic growth.

I think the market has absorbed most of the negative news to date and should push higher based on the fact investors are focused on earnings recovery and growth, said Jay Leupp, who manages $30 million in assets as president and portfolio manager at Grubb & Ellis AGA Funds in San Mateo, California.

The leading S&P 500 sector was utilities <.GSPU>, which rose 1.3 percent on Tuesday. Though considered a low-growth sector, utilities have risen 5.4 percent since April 8 when the recent slide in U.S. bond yields began.

Helping to support the market was news of a trade surplus in China, which eased fears about slow global growth.

Microsoft Corp was an outlier among index leaders, losing 0.6 percent to $25.67 after announcing it plans to buy Internet phone service Skype for $8.5 billion in cash, a price some believe is too expensive.

Shares of eBay Inc , which has a stake in Skype, rose 2.5 percent to $33.93.

The Dow Jones industrial average <.DJI> was up 75.68 points, or 0.60 percent, at 12,760.36. The Standard & Poor's 500 Index <.SPX> was up 10.87 points, or 0.81 percent, at 1,357.16. The Nasdaq Composite Index <.IXIC> was up 28.64 points, or 1.01 percent, at 2,871.89.

The S&P 500 is off 0.5 percent since the start of the month but remains just below recent highs for the up trend. Its May 2 intraday level was the highest since early June 2008.

In the very short term, if we close above 1,354, which is the highs from three days ago, that might lead us higher in a constant pattern up to 1,370 soon, said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.

Leupp said he sees at least 3-5 percent more upside in the near term before any kind of market correction takes place.

China, the world's second-largest economy, posted an $11.4 billion trade surplus in April, nearly four times greater than expected, after exports hit a record on healthy demand and imports rose less than forecast.

Boston Scientific Corp was the most heavily traded stock on the Big Board after Chief Executive Ray Elliot said he will step down at the end of 2011. The surprise announcement sent shares of the medical device maker down 8.9 percent to $7.02.

Among advancers, Dean Foods Co jumped 11.5 percent to $12.24 after posting higher-than-expected quarterly profit.

About 6.6 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, below the average of 7.73 billion so far in 2011 and lower than last week's levels.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of about 4 to 1 and on the Nasdaq by nearly 10 to 3.

(Reporting by Caroline Valetkevitch; Additional reporting by Angela Moon; Editing by Kenneth Barry)

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