* Citigroup rallies on higher-than-expected adjusted profit
* Retail sales top forecast, NY state manufacturing contracts
* Drugmakers rise, led by Eli Lilly, Abbott Labs
* Dow up 0.6 pct, S&P up 0.6 pct, Nasdaq up 0.3 pct
By Chuck Mikolajczak
NEW YORK, Oct 15 (Reuters) - U.S. stocks advanced on Monday as optimism about stronger-than-expected Citigroup earnings and retail sales, along with a rebound in energy shares, put investors in the mood to buy.
Citigroup Inc rose 4.5 percent to $36.32 and gave the biggest lift to the S&P 500 a fter the third-largest U.S. bank reported quarterly adjusted earnings that surged from the year-ago quarter and beat expectations. The growth came as mortgage lending increased and capital markets results rebounded.
Investors remained cautious about Europe, waiting for signs that Spain was ready to formally request a bailout, which is seen as necessary to deal with its debt crisis.
Both the Dow and the S&P 500 appeared to successfully defend their technical support levels at the 50-day moving average, which last week's declines had left each index on the precipice of breaking below.
After challenging five-year highs in mid-September, the benchmark S&P 500 retreated last week. The S&P 500 finished the week down 2.2 percent, notching its worst weekly performance in four months last week, on concerns about the strength of corporate earnings.
" After big declines last week, we have a strong Citi earnings (report) and positive European news. In the short term, it takes European stress out and allows markets to focus on earnings and the U.S. consumer," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
Lending further support was a rebound in energy shares as U.S. crude curbed an earlier slide that had pushed the price down below $90 a barrel. The S&P energy index gained 0.3 percent.
September retail sales rose 1.1 percent, above the 0.8 percent growth that had been anticipated, but a survey showed that an index of manufacturing activity in New York state shrank for the third month in a row in October.
The Dow Jones industrial average gained 79.32 points, or 0.60 percent, to 13,408.17. The Standard & Poor's 500 Index gained 8.45 points, or 0.59 percent, to 1,437.04. The Nasdaq Composite Index gained 10.07 points, or 0.33 percent, to 3,054.18.
Sprint-Nextel Corp fell 0.9 percent to $5.68 after Japanese mobile operator Softbank Corp said it would buy up to 70 percent of the company for $20.1 billion.
Sprint competitors AT&T Inc lost 1.3 percent to $35.17 and was the biggest drag on the Dow, while Verizon Communications Inc was flat at $44.62. An S&P index of telecom stocks slid 0.57 percent and ranked as the S&P 500's worst-performing S&P sector.
Profits of S&P 500 companies are seen dropping 2.4 percent this quarter from a year ago, according to Thomson Reuters data.
With only 7 percent of S&P 500 companies having reported, 60 percent of companies have topped profit expectations - less than the average beat rate of 67 percent for the past four quarters.
Drugmaker shares advanced, led by Eli Lilly and Co, up 4.2 percent at $52.55, and Abbott Laboratories, up 3.8 percent at $71.93. The S&P healthcare index climbed 1.3 percent.
Eli Lilly shares rose after the drugmaker said a late-stage study of its experimental gastric cancer drug met its main goal of improving overall survival. Abbott's stock gained after results from a mid-stage study of hepatitis C medicines.