* Chevron, Exxon boost Dow as oil prices rise on supply concerns
* Britain seeks U.N. authorization for military action against Assad
* Homebuilder shares fall after decline in pending home sales
* Indexes up: Dow 0.3 pct, S&P 0.3 pct, Nasdaq 0.4 pct
By Ryan Vlastelica
NEW YORK, Aug 28 (Reuters) - Wall Street rose on Wednesday as energy shares rallied on higher oil prices as the United States and its allies edged closer to military action against Syria.
Trading volume was thin and came after a drop in the S&P 500 index on Tuesday to its lowest in two months.
On Wednesday stocks recouped some of the losses as traders bought energy stocks, which rose on a spike in oil prices as markets feared supply interruptions from the Middle East.
Energy shares rose 1.8 percent, by far the biggest gainer among S&P 500 sectors. Chevron Corp gained 2.5 percent to $121.81 while Exxon Mobil was up 2.3 percent to $88.84. The two provided the biggest lifts to the Dow industrials and the S&P 500.
Brent crude gained 1.4 percent while U.S. crude futures rose 0.4 percent and are up 5.3 percent over the past five sessions as investors fret any military action could create supply problems. During the session, oil hit its highest since May 2011.
"If you want a hedge against Middle East uncertainty, energy shares will serve you well," said Jim McDonald, chief investment strategist at Chicago-based Northern Trust Global Investments.
At the U.N. Security Council, Britain sought authorization for military action for an alleged poison gas attack against Syrian civilians by President Bashar al-Assad's government. U.S. officials described plans for multinational strikes that could last for days.
McDonald, who helps oversee $803 billion in assets, said a "surgical involvement" by the West appeared more likely than "broad-scale activity, which is enough to give investors comfort about the impact of any involvement."
The CBOE Volatility Index, a measure of investor anxiety, fell 2.4 percent, though it remains up more than 17 percent on the week.
The Dow Jones industrial average was up 48.38 points, or 0.33 percent, at 14,824.51. The Standard & Poor's 500 Index was up 4.48 points, or 0.27 percent, at 1,634.96. The Nasdaq Composite Index was up 14.83 points, or 0.41 percent, at 3,593.35.
Despite the day's rise, the S&P was unable to close above its 100-day moving average, where it had traded for part of the session. The index first closed below that level, viewed a sign of weakening near-term momentum, for the first time since June 24 on Tuesday.
About 53 percent of stocks traded on the New York Stock Exchange closed higher while 56 percent of Nasdaq-listed shares ended higher.
Volume was light, with about 4.19 billion shares changing hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, below the daily average so far this year of about 6.31 billion shares.
Contracts to purchase previously owned U.S. homes fell for the second straight month in July, with the decline much wider than expected.
"This shows that the increase in mortgage rates has taken the wind out of the housing market's sails a bit. It's a little disappointing," said Northern Trust's McDonald.
PulteGroup Inc fell 1.3 percent to $15.38 and D.R. Horton Inc shed 1.3 percent to $17.77. The PHLX housing sector index dipped 0.3 percent.
While the rally in energy shares boosted the broader market, it did have a negative impact on airline stocks. The NYSE Arca airline index fell 0.8 percent, extending a 3.9 percent drop in the prior session. U.S. Airways Group fell 0.8 percent to $15.34.
Williams-Sonoma Inc reported second-quarter earnings that beat expectations. The announcement was unexpectedly released before the market closed. Shares fell 4.2 percent to $56.97.
Shares of mining equipment manufacturer Joy Global fell 4.7 percent to $48.89 after it reported a lower profit for the third quarter and said orders fell.