CORRECTED-US STOCKS-Wall St edges up, expects Fed tapering will be modest

Last Updated: Tue, Sep 17, 2013 16:30 hrs

(Corrects to show Apple shares closed below their 200 day average for the first time since August 12, not August 2012)

* Federal Reserve begins two-day policy meeting

* Investors expect modest tapering from the Fed: analysts

* Microsoft shares up on dividend announcement, Apple rebounds

* Indexes up: Dow 0.3 pct; S&P 0.3 pct; Nasdaq 0.4 pct

By Angela Moon

NEW YORK, Sept 17 (Reuters) - U.S. stocks rose slightly on Tuesday on expectations the Federal Reserve will make a modest cut in its stimulative bond buying and keep interest rates extraordinarily low, the latter a boon to stocks.

The policy-making Federal Open Market Committee begins its two-day meeting on Tuesday to discuss whether to scale back its monthly $85 billion in bond purchases, or quantitative easing, to aid the economy. Many investors expect the Fed and its chairman, Ben Bernanke, will scale back purchases by $10 billion a month while keeping rates close to zero for some time.

"It seems like now the market is believing that tapering will be very well managed by Bernanke, that he knows exactly what the market is expecting and that he's not going to disappoint," said Jack De Gan, principal and senior advisor at Harbor Advisory in Portsmouth, New Hampshire.

"We know that the tapering will be subjective based on the economic information that is coming in, and that the interest rate policy will remains as it is for a very long time."

A statement of the FOMC's decision will be released on Wednesday afternoon followed by a news conference by Bernanke.

Data on Tuesday showed U.S. consumer prices barely rose in August compared with July as the cost of energy fell, but an increase in rents and medical care costs pointed to a stabilization in underlying inflation that could make it easier for the Fed Reserve to start trimming its bond purchases.

The Dow Jones industrial average was up 52.92 points, or 0.34 percent, at 15,547.70. The Standard & Poor's 500 Index was up 5.75 points, or 0.34 percent, at 1,703.35. The Nasdaq Composite Index was up 14.68 points, or 0.39 percent, at 3,732.53.

Microsoft shares rose 0.6 percent to $33 after the company said it would buy back up to $40 billion of its shares and raise its quarterly dividend by 22 percent.

Apple shares, which closed below their 200-day moving average for the first time since August 12, rose 0.8 percent to $453.80.

Pandora Media Inc shares were down 2.9 percent at $23.30 a day after the company warned that its business is slowing and proposed a follow-on offering of 10 million shares for capital expenditures, according to a regulatory filing.

Shares of Aeropostale Inc jumped 17.1 percent to $10.08 after Sycamore Partners reported a 7.96 percent holding in the teen apparel retailer as of Sept. 9.

The Consumer Price Index, excluding volatile food and energy rose 1.8 percent, the largest increase since March. The steady rise in the year-on-year core CPI could ease concerns among some Fed officials about the disinflationary trend becoming entrenched.

A separate report showed U.S. homebuilder sentiment was unchanged in September after four straight months of gains. (Reporting by Angela Moon; Editing by Kenneth Barry)

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