* S&P 500 on track for best month since October 2011
* Expedia sheds more than 25 percent after results
* Amazon shares touch 52-week high
* Dow up 0.02 pct, S&P 500 up 0.1 pct, Nasdaq up 0.2 pct
By Alison Griswold
NEW YORK, July 26 (Reuters) - U.S. stocks erased losses late
in Friday's session to close slightly higher on investors'
optimism about the likelihood that the Federal Reserve will keep
its easy money policy in play a while longer.
With just three trading days left in the month, the S&P 500
is set to post its best month since October 2011. The Nasdaq's
advance makes July so far the best month in a year and a half.
After declining for most of the day, the market regained
ground shortly before the close, and all three major indexes
finished in positive territory. At one point, the Dow was down
as much as 150.45 points.
"I was surprised we ended up, but people have a sense of
optimism about the market," said Matt McCormick, a money manager
at Cincinnati-based Bahl & Gaynor Inc.
"The bad news from the morning was digested and discarded.
Earnings haven't been as bad as people expected, and the
political issues aren't in the forefront right now. That could
change at any moment, but enjoy the summer rally while you can."
Five of the 10 S&P 500 industry sector indexes advanced,
with the health sector leading the gains.
The Dow Jones Industrial Average rose 3.22 points, or
0.02 percent, to end at 15,558.83. The Standard & Poor's 500
Index gained 1.40 points, or 0.08 percent, to finish at
1,691.65. The Nasdaq Composite Index advanced 7.98
points, or 0.22 percent, to close at 3,613.16.
Quincy Krosby, market strategist at Prudential Financial in
Newark, New Jersey, said the market began to turn around on news
that President Barack Obama had not reached a decision on who
will succeed Federal Reserve Chairman Ben Bernanke and on
optimism that the central bank will keep monetary policy
"At least today, the market is expecting the Fed to offer no
surprises, and if anything, to be maybe a bit more dovish," she
Speculation over who Bernanke's successor could be has
caused anxiety in the market, with investors wondering how
different the next chair's policies would be. The timing of the
announcement is also tricky as the Fed simultaneously considers
when to begin pulling back its $85 billion a month in bond
The prospect that former Treasury Secretary Lawrence Summers
might get the nod, and not current Fed Vice Chair Janet Yellen,
has concerned investors. Yellen is seen as more likely to
provide a smooth transition after Bernanke's term ends, while
Summers is viewed as more critical of the effectiveness of the
central bank's stimulus.
Investors will scrutinize the Federal Open Market Committee
policy statement next Wednesday for any additional clues about
the Fed's intended timeline for scaling back its quantitative
For the week, the S&P 500 finished essentially flat - down
just 0.03 pct - the first week in five that it did not manage a
gain. But the benchmark index is up 5.3 percent so far in July -
its best month since October 2011.
The Dow rose 0.1 percent for the week, extending its string
of weekly gains. For July, the Dow is up 4.4 percent.
The Nasdaq is up 6.2 percent in July so far, its best
monthly gain in a year and half. For the week, the Nasdaq is up
about 0.7 percent.
Expedia ranked among the most active names traded
on the Nasdaq. Shares of the online travel agency plunged 27.4
percent to $47.20 a day after it reported a quarterly profit far
short of market estimates.
Starbucks gave the biggest boost to the S&P 500 a
day after the world's largest coffee chain reported a
bigger-than-expected jump in quarterly profit. Starbucks' stock
rose 7.6 percent to close at $73.36.
Halfway through earnings season, 67.6 percent of S&P 500
companies have beaten analysts' expectations - in line with the
67 percent average beat in the last four quarters.
About 56 percent of the companies have beaten revenue
expectations, more than the 48 percent of revenue beats in the
past four earnings seasons, but below the historical average.
Amazon shares turned higher despite a forecast that
disappointed on income and revenue. The stock rose 2.8 percent
to $312.01, a rebound from a session low at $295.55. Earlier on
Friday, Amazon's stock hit a 52-week high of
Boeing Co shares declined after the U.S. Federal
Aviation Administration said it was proposing to fine the
company's commercial airplane division $2.75 million for failing
to take prompt action to fix a problem with fasteners on its
model 777 airplanes. Shares of Boeing fell 1 percent to $105.60
and were the biggest drag on the Dow.
In addition to the FOMC meeting on Tuesday and Wednesday,
next week's packed economic calendar includes the advance
estimate, or second look, at gross domestic product for the
second quarter, and the July nonfarm payrolls report.
About 5.4 billion shares changed hands on U.S. exchanges,
below the daily average of 6.4 billion. Volume was relatively
light for the week as a whole.
Decliners outnumbered advancers on the New York Stock
Exchange by a ratio of 8 to 7. On the Nasdaq, about five stocks
fell for every three that rose.