* Staples, Office Depot in advanced merger talks - WSJ
* Stratasys drops after cutting outlook
* Factory orders fall for fifth straight month
* Indexes up: Dow 1 pct, S&P 0.61 pct, Nasdaq 0.1 pct (Adds factory orders data)
By Chuck Mikolajczak
NEW YORK, Feb 3 (Reuters) - U.S. stocks climbed on Tuesday,as the benchmark S&P 500 index built on a rally in the priorsession fueled by hopes of a deal on Greek debt and by risingoil prices.
Stocks rallied late in Monday's session on signs Greece wassoftening its approach to debt negotiations. A source toldReuters that Greek Finance Minister Yanis Varoufakis, in Londonto reassure private investors he was not seeking a showdown withBrussels over a new debt agreement, said the new left-winggovernment would spare privately held bonds from losses.
However, the Greek proposal to swap government debt forbonds with interest payments linked to economic growth got acool reception from euro zone officials on Tuesday.
Adding support to U.S. equities was a further gain in oilprices, with U.S. crude up 3.4 percent to $51.26 and Brent up2.9 percent to $56.32. Shares of offshore contract drillerTransocean gained 6.5 percent to $18.41.
"The market is beginning to see signs of some stabilitycoming into oil and the Greek situation seems to be tiltingtowards the side of what the market is looking for, which is aretreat from its call for a debt writedown," said Andre Bakhos,managing director at Janlyn Capital LLC in Bernardsville, NewJersey.
"So the market is latching on to a better Greek situation."
The Dow Jones industrial average rose 174.36 points,or 1 percent, to 17,535.4, the S&P 500 gained 12.42points, or 0.61 percent, to 2,033.27 and the Nasdaq Composite added 4.70 points, or 0.1 percent, to 4,681.39.
Stratasys shares plunged 34.1 percent to $52.76after the company cut its 2014 adjusted profit estimates for asecond time.
Office Depot shares surged 17.3 percent to $8.95after the Wall Street Journal reported the company was inadvanced talks to merge with Staples Inc. Staplesshares jumped 10 percent to $18.85.
U.S. factory orders fell for a fifth straight month inDecember by a worse-than-expected 3.4 percent, but asmaller-than-previously reported drop in business spending planssupported views of a rebound in the months ahead.
January car sales by the three Detroit automakers toppedanalysts' expectations, buoyed by low gas prices and easy creditterms. Ford Motor gained 1.6 percent to $15.51, General Motorsrose 2.2 percent to $33.84 and Fiat Chrysler climbed1.9 percent to $13.76.
Advancing issues outnumbered declining ones on the NYSE by2,214 to 709, for a 3.12-to-1 ratio on the upside; on theNasdaq, 1,725 issues rose and 817 fell for a 2.11-to-1 ratiofavoring advancers.
The benchmark S&P 500 index was posting 15 new 52-week highsand no new lows; the Nasdaq Composite was recording 45 new highsand 21 new lows. (Editing by Bernadette Baum)
BP (BP.)