S&P within 10 percent of record high as dividends lure investors

NEW YORK (Reuters) - The S&P 500 extended recent gains to climb on Monday within 10 percent of its historic closing high, buoyed by Apple after the company said it will pay a dividend and buy back stock.

The benchmark index is now at its highest level since May 2008 and less than 10 percent below its record closing high of 1,565.15 set in October 2007.

Apple Inc , the most valuable publicly traded company in the world, continued to attract investors after it announced the return of a dividend after more than a decade and a $10 billion buyback program.

Apple shares rose 2.3 percent to $598.11, inching closer to a 50 percent advance this quarter.

The dividend announcement from Apple comes days after major U.S. banks responded to the results of the Federal Reserve's stress tests by announcing higher dividends and stock buybacks.

These increases, alongside a steady stream of upbeat U.S. economic data, have cleared the way for more money being invested in stocks.

"You're getting initiations and increases in dividends, and people are starting to recognize there is nowhere else to go," said Jack de Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire.

"The effect of last week's stress tests in the banks is still working its way through, and a lot of folks think the banks have to perform well for the general market to advance, so that (support) is there as well," he said.

Financials were the best performing among the top 10 S&P 500 sectors, with the S&P financial index <.GSPF> up 1.3 percent.

The Dow Jones industrial average <.DJI> rose 24.49 points, or 0.19 percent, to 13,257.11. The Standard & Poor's 500 Index <.SPX> gained 8.78 points, or 0.63 percent, to 1,412.95. The Nasdaq Composite Index <.IXIC> advanced 29.77 points, or 0.97 percent, to 3,085.03.

Apple, maker of the iPad and iPhone, said it will pay a regular quarterly dividend of $2.65 a share - its first dividend since 1995 - starting in July, and buy back up to $10 billion of its stock, beginning in the next fiscal year.

A Morgan Stanley note to clients said a dividend payout at Apple is "the most favorable outcome for shareholders, as it could boost long-term stock performance and expand the investor base."

UBS raised its price target for US Steel's stock by almost 24 percent, attracting a blitz of investor attention, and the hard metal maker's shares jumped 7.4 percent to $31.96.

United Parcel Service Inc rose 3.2 percent to $81.47 as it clinched a deal to buy Dutch peer TNT Express , making UPS the market leader in Europe. Earlier, UPS shares hit an intraday high at $81.79.

Broadcom Corp gained 3 percent to $38.95 after the chipmaker said it won a preliminary injunction against Emulex Corp in a patent infringement lawsuit.

On the economic front, U.S. homebuilder sentiment was unchanged in March, holding at its highest level since June 2007, while sentiment in February was revised lower.

The PHLX housing stock index <.HGX> rose 0.6 percent and is up nearly 30 percent so far this quarter.

(Reporting by Rodrigo Campos; Editing by Jan Paschal)

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