CORRECTED: Wall Street trims gains as Greece debt default looms

(Corrects to make clear that Anthony Conroy previously worked with Convergex in paragraph 4; removes reference to record high in paragraph 6)

By Sweta Singh

(Reuters) - U.S. stocks shed some of their early gains on Tuesday as nervous investors wondered whether last-minute talks would produce a bailout deal that would keep Greece in the euro.

The Dow Jones Industrial Average and the S&P 500 were up about 0.4 percent on the last day of the second quarter, nearly halving early gains.

German Chancellor Angela Merkel told lawmakers she did not expect any new developments, appearing to dash hopes of a deal before Greece defaults on a 1.6 billion euro payment to the IMF.

Until there is clarity on Greece, the market will continue to see increased volatility, said Anthony Conroy, who has previouly worked as head trader for ConvergEx in New York.

Tuesday also brought a quarterly options expiration, which could also increase market fluctuations. The U.S. Independence Day holiday, being observed on Friday, means the weekly options expiry is a day early this week.

The CBOE Volatility index, a measure of the premium traders are willing to pay for protection against a drop in the S&P 500, was slightly down at 18.81.

With a few hours of trading left in June, the Dow was headed for a modest decline for the second quarter, while the S&P 500 was slightly positive.

On Monday, U.S. stocks fell sharply in heavy trading and the S&P 500 and the Dow had their worst day since October.

U.S. corporations have limited exposure to Greece, but investors are concerned about the fallout across Europe if the country exits the euro zone.

In Asia, Chinese stocks reversed course to end up 5.5 percent after the government and regulators stepped up efforts to halt a 20 percent slump in the past few weeks.

In U.S. data, single-family home prices rose in April from a year earlier but at a slower pace than forecast, a closely watched survey said on Tuesday.

U.S. consumer confidence index rose higher-than-expected to 101.4. The consensus was 97.3.

Investors are keeping a close watch on data for clues on the timing of an interest rate increase by the Federal Reserve. The Fed has said it will raise rates when it sees a sustained rebound in the economy.

At 11:27 a.m. EDT the Dow Jones industrial average was up 72.61 points, or 0.41 percent, at 17,668.96, the S&P 500 was up 9.58 points, or 0.47 percent, at 2,067.22 and the Nasdaq Composite was up 34.08 points, or 0.69 percent, at 4,992.54.

Nine of the 10 major S&P 500 sectors were higher, with the financials leading with a 0.6 percent gain.

McDonald's was the biggest drag on the Dow with a 0.3 percent decline.

For-profit education provider Apollo Education fell 13.9 percent to $13.39 after the company reported lower-than-expected sales on Monday.

Signal Genetics shares jumped 39 percent to become the biggest percentage gainer on the Nasdaq after it signed an agreement with a "leading" pharmaceutical company.

Juno Therapeutics rose 18.3 percent to $54.86 after Celgene signed a 10-year partnership with the company.

Willis Group Holdings shares rose 5 percent to $47.67 after the insurance broker said it would combine with financial services provider Towers Watson & Co. Towers Watson shares fell 2.7 percent.

Advancing issues outnumbered decliners on the NYSE by 2,002 to 965, for a 2.07-to-1 ratio on the upside. On the Nasdaq, 1,836 issues rose and 833 fell for a 2.20-to-1 ratio favoring advancers.

The S&P 500 index showed 3 new 52-week highs and 21 new lows, while the Nasdaq recorded 16 new highs and 75 new lows.

(Additional reporting by Siddharth Cavale in Bengaluru; Editing by Saumyadeb Chakrabarty)