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US STOCKS-Wall Street surges as final quarter begins

(For a Reuters live blog on U.S., UK and European stock markets, click or type LIVE/ in a news window.)

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Tesla down as Q3 deliveries miss market estimates

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U.S. factory activity slowest in ~2.5 years in Sept -ISM

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Credit Suisse, Citi cut 2022 year-end target for S&P 500

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Indexes up: Dow 2.99%, S&P 500 2.94%, Nasdaq 2.67%

(updates prices)

By Echo Wang

Oct 3 (Reuters) -

Wall Street's three major indexes rallied over 2.5% on Monday to start the final quarter of a tumultuous year in which investors fretted about aggressive interest rate hikes amid historically hot inflation and fears of slowing economic growth.

All 11 major S&P 500 sectors are in positive territory, with energy on track for its best day in more than three months.

Oil majors Exxon Mobil Corp and Chevron Corp rose more than 5.5%, tracking a jump in crude prices as sources said the Organization of the Petroleum Exporting Countries and its allies are considering their biggest output cut since the start of the COVID-19 pandemic.

Megacap growth and technology companies such as Apple Inc and Microsoft Corp each rose about 3.5%, while banks advanced 3.1%.

Data showed manufacturing activity increased at its slowest pace in nearly 2-1/2 years in September as new orders contracted, likely as rising interest rates to tame inflation cooled demand for goods.

The Institute for Supply Management said its manufacturing PMI dropped to 50.9 this month, missing estimates but still above 50, indicating growth.

"The economic data stream actually came in worse than expected. In a very counterintuitive fashion that likely represents good news for equity markets," said Art Hogan, chief market strategist at B. Riley Wealth in Boston.

"(While) good economic data, strong readings had been a catalyst for selling, this is the first time we've actually seen some negative news be a catalyst."

Further supporting rate-sensitive growth stocks, the benchmark U.S. 10-year Treasury yield fell after British Prime Minister Liz Truss was forced to reverse course on a tax cut for the highest rate.

"The U.S. yield markets (are) pulling back - that's been a positive ... and that connotes a more risk-on environment," said Hogan.

All three major indexes ended a volatile third quarter lower on Friday on growing fears that the Federal Reserve's aggressive monetary policy will tip the economy into recession.

Tesla Inc fell 7.5% after it sold fewer-than-expected vehicles in the third quarter as deliveries lagged way behind production due to logistic hurdles. Peers Lucid Group gained 1.4% and Rivian Automotive fell 2.5%.

Major automakers are expected to report modest declines in U.S. new vehicle sales, but analysts and investors worry that a darkening economic picture, not inventory shortages, will lead to weaker car sales.

Citigroup and Credit Suisse became the latest brokerages to lower their 2022 year-end targets for the S&P 500, as U.S. equity markets bear the heat of aggressive central bank actions to tamp down inflation.

Credit Suisse also set a 2023 year-end price target for the benchmark index at 4,050 points, adding that 2023 would be a "year of weak, non-recessionary growth and falling inflation."

Advancing issues outnumbered declining ones on the NYSE by a 6.07-to-1 ratio; on Nasdaq, a 2.87-to-1 ratio favored advancers.

The S&P 500 posted 1 new 52-week highs and 23 new lows; the Nasdaq Composite recorded 49 new highs and 268 new lows. (Reporting by Echo Wang in New York; Additional reporting by Ankika Biswas and Bansari Mayur Kamdar in Bengaluru; Editing by Anil D'Silva, Arun Koyyur and Richard Chang)