US STOCKS-Another up day for oil helps Wall St extend its rally

* Brent crude up above $40 per barrel

* Chipotle down as employees fall ill

* Biotechs fall on test program to lower Medicare drug costs

* Indexes up: Dow 0.16 pct, S&P 0.41 pct, Nasdaq (NasdaqGS: NDAQ - news) 0.43 pct (Updates to afternoon)

By Noel Randewich

March 9 (Reuters) - Wall Street built on a nearly month-old rally on Wednesday as a strong recovery in oil prices sent energy shares sharply higher.

Volatility in oil and stock prices has been linked for much of 2016 to a degree that has surprised many investors. Wednesday's market action extended that trend, with Brent crude rising above $40 a barrel, continuing its recovery from decade lows that led to stock market turmoil in January.

"It (Other OTC: ITGL - news) 's still this puzzling correlation between the price of oil and stocks. It really is not supposed to play out this way," said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa.

"But given that oil drove the U.S (Other OTC: UBGXF - news) . stock market down, it makes sense that stocks' rise would be tied to oil's comeback."

Since Feb. 11, the S&P 500 has gained 8.7 percent, repairing some of the damage caused by the S&P 500's worst January since 2009. The index remains down 3 percent for 2016.

At 2:42 p.m., the Dow Jones industrial average was up 0.16 percent to 16,991.02 points and the S&P 500 had gained 0.41 percent to 1,987.35.

The Nasdaq Composite added 0.43 percent to 4,668.78.

Seven of the 10 major S&P sectors were higher, led by a 1.64 percent rise in the energy sectors. Chevron (Swiss: CVX.SW - news) jumped 4.73 percent and gave the biggest boost to the sector.

Investors were also looking to the European Central Bank, which will make a decision on its monetary policy on Thursday and is expected to increase its stimulus program.

While the U.S. Federal Reserve is not expected to raise interest rates at its meeting on March 15-16, the central bank has said it is on track to raise rates gradually this year.

Biotechs came under pressure after the U.S. government proposed a test program aimed at lowering Medicare drug costs. The Nasdaq Biotechnology sector fell 1.27 percent.

Amgen (Xetra: 867900 - news) 's 2.98 percent decline was the biggest drag on the Nasdaq and the S&P 500. Regeneron dropped 4.93 percent and Celgene (Swiss: CELG.SW - news) fell 1.77 percent.

Chipotle Mexican Grill (NYSE: CMG - news) lost 3.78 percent. Already reeling from several food-borne illnesses, the company temporarily shut a Massachusetts restaurant after four employees fell sick.

Advancing issues outnumbered decliners on the NYSE by 2,117 to 843. On the Nasdaq, 1,693 issues rose and 1,049 fell.

The S&P 500 index showed 27 new 52-week highs and one new low, while the Nasdaq recorded 43 new highs and 36 new lows. (Additional reporting by Abhiram Nandakumar in Bengaluru; Editing by Nick Zieminski)