* August retail sales rise
* Fed to meet on Wednesday and Thursday
* All 10 S&P sectors higher; energy leads
* Fiat Chrysler up as talks with union continues
* Indexes up: Dow 0.95 pct, S&P 0.80 pct, Nasdaq 0.74 pct (Adds details, changes comment, updates prices)
By Tanya Agrawal
Sept 15 (Reuters) - U.S. stocks rose in cautious trading on Tuesday after data showed retail sales continued to climb in August, strengthening the case for an interest rate increase when the Federal Reserve meets this week.
Analysts said an interest rate hike - the first since 2006 -would remove the uncertainty that has dogged the market for several weeks.
"The debate around the Fed continues but the Fed will do more damage waiting for December to raise rather than start the normalization process," said Art Hogan, chief market strategist at Wunderlich Securities.
"If they don't raise rates this week, it's a bad signal."
U.S. interest rates futures implied traders placed a 27 percent chance the Fed would end its near-zero interest rate policy on Thursday, up from 23 percent late on Monday, according to CME Group's FedWatch program.
At 11:58 a.m. ET (1558 GMT) the Dow Jones industrial average was up 154.9 points, or 0.95 percent, at 16,525.86; the S&P 500 was up 15.62 points, or 0.8 percent, at 1,968.65 and the Nasdaq Composite was up 35.53 points, or 0.74 percent, at 4,841.29.
All 10 major S&P sectors were up, with the energy index's 1.15 percent gain leading the advancers. Brent crude edged above $46 a barrel, supported by the prospect of lower U.S. inventories and production. Chevron was up 2.3 percent while Exxon was up about 1 percent.
Gains were capped by other data that showed U.S. manufacturing continuing to struggle. Factory activity in New York state contracted in September for a second straight month.
Stocks have been volatile since China devalued its currency in August. The S&P 500 has had moves of at least 1 percent in more than 10 sessions since Aug. 20.
"There is an argument to be made that part of the current fear in the markets is uncertainty, and the start of the normalization process will eliminate the ambiguity," Jones Trading said in a note to clients.
Shares of Fiat Chrysler Automobiles were up 2.8 percent at $14.74 after the United Auto Workers union said it will keep talking with the automaker to reach a new contract for the company's U.S. factory workers, delaying a possible strike at its most profitable operations.
Gray Television jumped 13.7 percent to $13.38 after the broadcaster said it would buy Schurz Communications' television and radio stations for $442.5 million.
Advancing issues outnumbered decliners on the NYSE by 1,895 to 986. On the Nasdaq, 1,808 issues rose and 822 fell.
The S&P 500 index showed one new 52-week high and four new lows, while the Nasdaq recorded 28 new highs and 42 new lows. (Reporting by Tanya Agrawal; Editing by Don Sebastian)