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NEW YORK (TheStreet) -- Oil is making a comeback and it's bringing equities along for the ride.

West Texas Intermediate surged 6.9% to $52.98 a barrel, extending gains through a third straight day on a drop in U.S. oil rig counts.

BP (BP) - Get BP Plc Report joined several other oil companies in cutting capital expenditures in response to plunging oil prices. The oil giant said it would limit investment spending to $20 billion over 2015 from $22.9 billion in 2014. Earlier, China-based energy company CNOOC (CEO) - Get CNOOC Ltd. Report said it would cut capital spending by as much as 35% this year, while Chevron (CVX) - Get Chevron Corporation Report announced a 13% reduction to its capex budget.

Benchmark indexes rallied on Tuesday, led higher by a surge in energy stocks. The S&P 500 gained 1.2%, the Dow Jones Industrial Average added 1.6%, and the Nasdaq climbed 0.8%.

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Exxon Mobil (XOM) - Get Exxon Mobil Corporation Report was up 2.7%, PetroChina (PTR) - Get PetroChina Co. Ltd. Report gained 3.1%, Total (TOT) - Get Total SA Report added 3.5%, and Schlumberger (SLB) - Get Schlumberger NV Report increased 3.3%. The Energy Select Sector SPDR ETF (XLE) - Get Energy Select Sector SPDR Fund Report climbed 2.6%.

Solar stocks were partaking in the energy rally, too. First Solar (FSLR) - Get First Solar, Inc. Report , SunPower (SPWR) - Get SunPower Corporation Report , JinkoSolar (JKS) - Get JinkoSolar Holding Co. Ltd. Report and Daqo New Energy (DQ) - Get Daqo New Energy Corp. Report were all spiking. Canadian Solar (CSIQ) - Get Canadian Solar Inc. Report was nearly 26% higher after striking a deal to buy solar developer Recurrent Energy from Sharp Corp. for $265 million. 

St. Louis Federal Reserve Bank President James Bullard said Tuesday that plunging oil prices had distorted inflation measures and to interpret them with a grain of salt until energy prices stabilize. Bullard reiterated his hawkish view that the central bank should raise rates sooner than later.

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U.S. factory orders for December fell 3.4%, a larger drop than the 2.4% fall anticipated. A day earlier, the January ISM Index dropped to 53.5 compared to an expected reading of 54.1.

Twitter (TWTR) - Get Twitter, Inc. Report spiked 6.7% after announcing advertising partnerships with Yahoo! Japan and Flipboard. The social network will have the ability to syndicate Promoted Tweets through the news site.

Staples (SPLS) shares rose 11% and Office Depot (ODP) - Get ODP Corporation Report was up 21.9% on reports the companies are in discussions to merge, said a report in TheWall Street Journal.

Petrobras (PBR) - Get Petróleo Brasileiro SA Report rallied more than 13%, partly due to rising oil prices but also on reports CEO Maria das Gracas Foster will resign soon in the face of the company's growing corruption investigation. Arch Coal (ACI) - Get Albertsons Companies, Inc. Class A Report surged more than 14% after reporting a narrower-than-expected quarterly loss. The coal miner decreased cost-per-ton expenses from a year earlier.

Wendy's (WEN) - Get Wendy's Company Report climbed 8.2% on the announcement it will sell 500 more of its locations to franchisees. The fast food chain aims to own just 5% of its restaurants by mid-2016.

Ford (F) - Get Ford Motor Company Report jumped 2.5% as January unit sales rose 15.3%, compared to an expected 12.8% increase. Retail passenger car sales surged 17%. Honda (HMC) - Get Honda Motor Co. Ltd. Report reported an 11.5% increase in unit sales, while General Motors'  (GM) - Get General Motors Company Report  sales climbed 18.3%, both slightly under forecasts. 

European markets closed higher, led by a rally on the Athens Stock Exchange, as the new Greek government signaled a more accommodative approach to its debt talks with the European Central Bank and International Monetary Fund. The anti-austerity party that came into power last week said Monday that it had dropped its request for a write-down on foreign debt, proposing instead a swap with bonds.

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--Written by Keris Alison Lahiff in New York.