(Updates to close)
* Starboard Value takes stakes in Office Depot, Staples
* Initial claims fall, retail sales top expectations
* Indexes up: Dow 0.4 pct, S&P 0.5 pct, Nasdaq 0.5 pct
By Caroline Valetkevitch
NEW YORK, Dec 11 (Reuters) - U.S. stocks rose on Thursday as upbeat retail sales and other U.S. data pointed to a strengthening U.S. economy and lifted optimism about consumer spending.
Indexes ended well off their highs for the day, however, paring gains late in the session as Brent oil settled down 0.9 percent, putting a lid on energy shares, and as worries increased about a possible U.S. government shutdown.
The gains come after the S&P 500 shed 2.4 percent over the previous three sessions, the worst run for the benchmark index in two months, as weak oil prices weighed down the energy sector.
Still, lower oil prices likely encouraged consumer holiday spending, and November retail sales beat expectations. Retailers were among the day's biggest percentage gainers on the S&P 500, including Urban Outfitters, up 7.6 percent at $32.29. The S&P retail index jumped 1 percent.
"It suggests overall spending is going to do well," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York. He said a year-end rally could take the S&P to about 2,100.
Other economic data showed a strengthening labor market, as weekly initial jobless claims dipped by 3,000 to an adjusted 294,000, while the drop in oil prices helped spur the biggest decline in U.S. import prices in 2-1/2 years.
The Dow Jones industrial average rose 63.19 points, or 0.36 percent, to 17,596.34, the S&P 500 gained 9.19 points, or 0.45 percent, to 2,035.33 and the Nasdaq Composite added 24.14 points, or 0.52 percent, to 4,708.16.
The fate of a $1.1 trillion U.S. spending bill was put in doubt by Democratic objections over a provision to roll back part of the Dodd-Frank financial reform law. Current spending authority for federal agencies expires at midnight.
Investors are still "a bit worried about a government shutdown," said Bruce Zaro, chief technical strategist, Bolton Global Asset Management in Boston.
The S&P energy sector, which has been hammered by the recent slide in oil prices, pared gains late in the session to close flat as oil prices fell further.
Brent crude, down more than 40 percent from its June high, settled down 0.9 percent at $63.68 a barrel.
Staples Inc jumped 8.7 percent to $16.10 and Office Depot climbed 12.1 percent to $7.54 after activist investor Starboard Value LP disclosed stakes in both office-supply retailers.
About 7.2 billion shares changed hands on U.S. exchanges, above the 6.9 billion average for the last five sessions, according to BATS Global Markets.
NYSE advancers outnumbered decliners 1,787 to 1,295, for a 1.38-to-1 ratio; on the Nasdaq, 1,668 issues rose and 1,089 fell, for a 1.53-to-1 ratio.
The S&P 500 posted 36 new 52-week highs and 15 lows; the Nasdaq Composite recorded 91 new highs and 93 lows. (Editing by Nick Zieminski)