S&P, Dow hold gains even as Yellen paints bleak picture

By Yashaswini Swamynathan

REUTERS - The S&P and the Dow held on to gains on Tuesday even as Federal Reserve Chair Janet Yellen warned of a slower pace of economic recovery and global risks including Britain's possible exit from the European Union.

The Nasdaq was little changed as biotech stocks weighed.

"The pace of improvement in the labor market appears to have slowed more recently, suggesting that our cautious approach ... remains appropriate," Yellen told the Senate Banking Committee.

The Fed left interest rates unchanged and cut the economy's growth forecast last week after surprisingly weak monthly hiring data put the economy's recovery in question.

Weak productivity, slowing economic activity and financial developments abroad led the committee to expect interest rates to remain low for "some time", Yellen said.

Weighing on the Fed's decision is Britain's vote on its EU membership on Thursday, which Yellen said could cause market volatility.

"The Fed's normalization plan in raising interest rates is being met head on with an economic slowdown and collapsing long-term interest rates," said James Abate, chief investment officer at Centre Asset Management in New York.

The Fed Board of Governors report submitted to Congress said forward price-to-earnings ratios for equities have increased to a level well above their median of the past three decades.

The S&P 500 is trading at about 16.6 times expected earnings, well above the 30-year average of 15.2 times, according to Thomson Reuters StarMine.

At 12:36 p.m. ET (1636 GMT), the Dow Jones Industrial Average was up 37.84 points, or 0.21 percent, at 17,842.71.

The S&P 500 was up 6.02 points, or 0.29 percent, at 2,089.27.

The Nasdaq Composite was up 3.89 points, or 0.08 percent, at 4,841.11. Celgene's 2.1 percent fall dragged down the index.

Apple and Microsoft were the top influencers on all three major indexes.

United Continental rose 2.4 percent to $44.45 after the airline operator laid out plans to generate $3.1 billion per year by 2018.

Six of the 10 major S&P sectors were higher, led by a 1.01 percent rise in the telecom services index.

Advancing issues outnumbered decliners on the NYSE by 1,515 to 1,404. On the Nasdaq, 1,751 issues fell and 959 advanced.

The S&P 500 index showed 22 new 52-week highs and 3 new lows, while the Nasdaq recorded 33 new highs and 42 new lows.

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Don Sebastian)