Wall St rises for second day as data eases Fed worry

By Ryan Vlastelica

NEW YORK (Reuters) - U.S. stocks advanced for a second straight day on Wednesday as a broad measure of economic growth was revised down, easing investors' concerns that the Federal Reserve would begin to withdraw its stimulus early.

The economy grew 1.8 percent in the first quarter, according to the Commerce Department's final estimate of gross domestic product. That was well below expectations for 2.4 percent growth.

While the data is backward-looking and includes the start of cutbacks in federal spending, analysts said it could influence the Fed as it considers whether the economy is strong enough for it to begin scaling back its bond-buying.

The effect of the GDP report "is that despite all the rhetoric and fear about tapering, this will keep the Fed firmly planted in stimulus, which is a positive for the market," said Michael Mullaney, chief investment officer at Fiduciary Trust Co in Boston.

Markets have been closely tethered to the central bank's bond-buying program, advancing to a series of record highs as investors bet it would remain in place, and then dropping dramatically on hints the bond buying could be scaled back.

The S&P 500 is down about 3 percent since June 19 when the Fed signaled it may begin to scale back its stimulus efforts should its economic forecasts hold. That litmus test has created a paradox for the market: strong data favors the Fed scaling back, but removing the stimulus could adversely affect future growth.

The weak GDP report "is another example of bad news being good news," said Mullaney, who helps oversee $9.5 billion.

The Dow Jones industrial average was up 79.37 points, or 0.54 percent, at 14,839.68. The Standard & Poor's 500 Index was up 8.69 points, or 0.55 percent, at 1,596.72. The Nasdaq Composite Index was up 19.67 points, or 0.59 percent, at 3,367.56.

The S&P has gained 1.8 percent over the past two sessions, its best two-day rally in three weeks. But prior to the current rally, Fed concerns sparked a massive sell-off. The S&P 500 index last week posted its worst week since April.

Tuesday's rally came after the People's Bank of China eased concerns about a possible banking crisis in the world's second-largest economy. Data on durable goods, new home sales and consumer confidence also added to the positive tone.

Tech companies advanced following bullish analyst commentary. Adobe Systems Inc rose 2.7 percent to $45.56 after Jefferies & Co upgraded the stock to "buy" from "hold," citing expectations for more new users, while Microsoft Corp climbed 1.6 percent to $34.21 after Morgan Stanley raised its rating on the software company to "overweight."

On the downside, gold stocks were under pressure as the precious metal fell to its lowest in almost three years, putting it on course for a record quarterly loss. Material stocks <.SPSMCM> were the weakest of the day, falling 0.3 percent.

U.S.-listed shares of Gold Fields Ltd dropped 5.5 percent to $4.80 and Barrick Gold Corp lost 6.3 percent to $15.10. Newmont Mining was one of the biggest decliners on the S&P 500, losing 4.9 percent to $27.51. The NYSEArca gold bug index <.HUI>, comprising a basket of unhedged gold stocks, declined 4.3 percent.

Apollo Group , owner of the University of Phoenix, was the biggest decliner on the S&P, shedding 8 percent to $17.83 a day after reporting its third-quarter results.

Monsanto Co fell 0.3 percent to $101.09 after the seed company posted a drop in quarterly profits.

General Mills slipped 0.6 percent to $48.05 after giving a forecast for the new fiscal year that fell shy of expectations, even as its quarterly profit was in line with estimates.

As the market nears the end of the second quarter, equities may also receive a boost from "window dressing," the practice of fund managers selling underperforming stocks and buying better performing shares to enhance the appearance of their portfolios.

(Editing by Nick Zieminski)