* Tuesday's rebound suggests trend of increased volatility
* Google up after Nest purchase; Tesla rallies on deliveries
* GM jumps after-hours, sets 1st dividend in almost 6 years
* Indexes up: Dow 0.7 pct, S&P 1.1 pct, Nasdaq 1.7 pct
By Rodrigo Campos
NEW YORK, Jan 14 (Reuters) - U.S. stocks rose on Tuesday, erasing much of the previous session's steep drop, as a strong December retail sales reading eased concerns that economic growth might be slowing.
Google rose 2.4 percent to $1,149.40, giving a large boost to the outperforming Nasdaq, a day after the company announced plans to acquire Nest Labs Inc. The $3.2 billion deal will give Google a promising line of products and a prized design team.
Core U.S. retail sales increased 0.7 percent in December from the prior month, flying past the 0.3 percent gain economists had expected. Fourth-quarter economic growth prospects were further boosted by a report showing retail inventories, excluding autos, increased 0.6 percent in November.
The data followed Friday's payroll report, which showed job growth for December that was sharply below expectations.
"Retail sales numbers for December sort of calmed everyone down," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. "Numbers indicate the economy is most likely moving forward at a nice pace despite an errant jobs number last Friday."
The Dow Jones industrial average rose 115.92 points or 0.71 percent, to 16,373.86, the S&P 500 gained 19.68 points or 1.08 percent, to 1,838.88, and the Nasdaq Composite added 69.712 points, or 1.69 percent, to 4,183.016.
Tuesday's gains came a day after the S&P 500 posted its largest drop in two months, and market participants say they are gearing up for a more volatile 2014 after a year that saw U.S. stocks constantly go higher.
"We're seeing a good preview of what the year will bring, which is a little bit more volatility," said Andres Garcia-Amaya, Global Market Strategist at J.P. Morgan Funds.
The CBOE volatility index dropped 7.5 percent to 12.28 after gaining 9.4 percent on Monday.
"We got accustomed to very low volatility and (a VIX reading of) 14-16 is not out of the question," Garcia-Amaya said.
Shares of General Motors jumped 3 percent to $41.20 in extended trading after the company said it will pay the first quarterly dividend on its common stock in almost six years.
Intel Corp shares jumped 4 percent to close at $26.51 in regular trade after JPMorgan upgraded the stock to "overweight" from "neutral."
Electric car maker Tesla said deliveries of its Model S sedan in the fourth quarter blew past its forecast, sending shares up 15.7 percent to $161.27.
Both JPMorgan Chase & Co and Wells Fargo & Co posted earnings that beat expectations, though upside was limited with Wells Fargo shares already near all-time highs and JPMorgan shares at their highest since 2000. Shares of both banks rose less than 0.1 percent on the day.
With just 5 percent of the S&P 500 companies having reported quarterly results, 53.8 percent have beaten earnings expectations, according to Thomson Reuters data, below the 63 percent historical average. About 62 percent have beaten on revenue, above the long-term 55 percent average.
Bank of America Corp, Citigroup, Goldman Sachs and Morgan Stanley will post results later in the week. General Electric Co and Intel are also on tap.
Both GameStop Corp and Stratasys Ltd slumped after giving outlooks that were weaker than expected. GameStop lost 19.9 percent to $36.31, while 3D printer maker Stratasys slid 8.2 percent to $119.37.
In contrast, Intuitive Surgical advanced 6.8 percent to $419.88 after the surgical equipment maker gave a strong fourth-quarter outlook.
Charter Communications is trying to strike a deal to buy Time Warner Cable and sway its shareholders after three of its offers have been rebuffed. On Monday, Charter took its approach public and proposed paying $132.50 per TWC share.
TWC shares gained 2.7 percent to $136 and Charter added 2.3 percent to $137.34.
Volume was roughly in line with the year-to-date average of about 6.5 billion shares traded on U.S. exchanges, according to data from BATS Global Markets. Monday's sharp decline came in volume of 7.22 billion shares.
Advancing stocks outnumbered decliners on the NYSE by 12 to 5 and on the Nasdaq three issues rose for every one that fell.
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