* Home Depot, Target, Saks profits top Wall St forecasts
* U.S. housing starts lower-than-expected in July
* Indexes up: Dow 0.8 pct, S&P 500 0.97 pct, Nasdaq 1.2 pct (Updates to midday, changes byline)
By Rachel Chang
NEW YORK, Aug 18 (Reuters) - U.S. stocks rose on Tuesday, rebounding from a sharp fall in global equities in the previous session as better-than-expected results from big retailers offset a surprise drop in housing starts.
Consumer giants Home Depot, Target and upscale department store operator Saks Inc were helped by cost-cutting as revenue growth remained slack. That trend has dominated earnings season, but investors generally approved, bidding stocks higher.
U.S. housing starts and permits fell unexpectedly in July, while the inventory of total houses under construction fell to a record low, a government report showed, adding to concerns that the nascent recovery in the housing market may be slow.
Still, retailers bolstered investor sentiment Tuesday after Monday's decline of nearly 2 percent in the S&P 500.
"These are the types of stocks that people are looking for to get some indication of whether consumers are coming back to any sort of health," said Steve Weeple, head of U.S. equities at Standard Life Investments in Boston.
On Monday, the S&P 500, which is up nearly 50 percent since March, faced its steepest decline in seven weeks, a drop some analysts were quick to call the start of a market correction.
The Dow Jones industrial average was up 76.18 points, or 0.83 percent, at 9,211.52 points. The Standard & Poor's 500 Index rose 9.46 points, or 0.97 percent, to 989.19. The Nasdaq Composite Index was up 23.48 points, or 1.22 percent, at 1,954.32.
Financial, retail and technology stocks were the top advancers Tuesday, but gains were broad-based. The Nasdaq outpaced the other indexes, climbing over 1 percent, after RBC highlighted investment opportunities in the smartphone market and raised its price target on shares of Apple Inc, Research in Motion Ltd and Palm Inc.
Mohamed El-Erian, the chief executive of bond fund manager Pacific Investment Management Co, said told Reuters Television on Tuesday that the rally in U.S. stock markets has topped out, as valuations are running ahead of fundamentals.
Standard Life's Weeple said Monday's "down day took some steam out of the market ... which meant that the market could show enthusiasm for the news today coming off a lower base."
Tuesday's results from retailers were in sharp contrast to those of Lowe's Cos, which weighed on investors a day earlier. Lowe's, the No. 2 U.S. home improvement chain and key rival of Home Depot, was down 2.54 percent at $19.95.
Home Depot shares rose 3.5 percent to $27.01, Target climbed 7.3 percent to $44.23 and Saks added 7.6 percent to $5.53. The S&P retail index was up 1.73 percent.
Another key earnings report will come after the market closes. Investors will watch Hewlett-Packard Co, seen as a bellwether for the technology sector, for a pickup in corporate spending. The shares rose 1.1 percent to $43.59.
Off the RBC comments, Apple's shares climbed 2.4 percent to $163.46, RIM added 4.2 percent to $73.68 and Palm climbed 4 percent to $13.76.