US STOCKS-S&P 500 at 2-1/2-month high on earnings, stimulus bets

Last Updated: Fri, Jul 20, 2012 18:13 hrs

* Intel up despite revenue warning

* Financial shares lower after BofA results

* FDA approves Vivus weight-loss drug, stock jumps

* EMC rallies on VMWare exec shuffle

* Indexes up: Dow 0.8 pct, S&P 0.8 pct, Nasdaq 1.4 pct

By Rodrigo Campos

NEW YORK, July 18 (Reuters) - The S&P 500 touched its highest level since early May on Wednesday as corporate profits from bellwethers including Intel and Honeywell continued to defy the downward trend of economic growth.

Corporations nonetheless are cautious about a slowing economy, lifting the market's hopes for further stimulus from the Federal Reserve.

Fed chairman Ben Bernanke repeated in Congressional testimony Wednesday and Tuesday the Fed's pledge to act if the economy needed it, as he underscored his concerns specifically in the job market.

Honeywell Inc profits topped consensus views amid what it called a "tough macroeconomic environment" and its 6.5 percent advance to $58.10 led gains on the S&P industrial sector.

Top chipmaker Intel Corp reduced its growth forecast also on macro concerns but gross margins were healthy and the stock rose 3.6 percent to $26.30 and boosted technology shares. The PHLX semiconductor index jumped 3.9 percent a day after hitting its 2012 low.

"The theme coming out in earnings is companies are coming in short in revenue but still beat on earnings. Analysts have moved their targets (lower) and companies still are lean and mean and are able to generate profit," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

She said the market "really, really wants QE3," or more monetary stimulus from the Fed. "Bernanke is painting a dire picture and the bulls in the market are holding out for more Fed action."

Data storage equipment maker EMC Corp also boosted tech shares with an 10.3 percent gain to $25.27 after it replaced the head of its VMware Inc unit and reported a preliminary second-quarter profit. VMWare shares gained 11.2 percent to $89.32.

The Dow Jones industrial average rose 107.81 points, or 0.84 percent, to 12,913.35. The S&P 500 Index gained 10.79 points, or 0.79 percent, to 1,374.46. The Nasdaq Composite added 39.44 points, or 1.36 percent, to 2,949.48.

Financials underperformed the broad S&P 500, with the sector slipping 0.2 percent. Bank of America Corp lost 1.9 percent to $7.77 after it posted a decline in revenue.

Vivus Inc shares jumped 13.8 percent to $30.12 after regulators approved the company's weight-loss drug.

Shares of Rovi Corp fell to their lowest in 3-1/2 years after the digital media solutions provider slashed its profit forecast for the year and two brokerages downgraded its stock. Rovi shares last traded down 40.4 percent at $10.52.

Groundbreaking on new U.S. homes rose in June to its fastest pace in over three years, lending a helping hand to an economy that has shown worrisome signs of cooling.

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