S&P 500 rises to 2-1/2-month high on profits

NEW YORK (Reuters) - The S&P 500 touched its highest level since early May on Wednesday as corporate profits from bellwethers Intel and Honeywell defied fears of a collapse in earnings.

Chipmaker Intel Corp reduced its growth forecast due to macroeconomic concerns late on Tuesday, but gross margins were healthy and the stock rose 3.3 percent to $26.21. Intel boosted technology shares and helped the market to rise for a second day.

"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.

Companies remain cautious about a slowing economy, feeding the market's hopes for further stimulus from the Federal Reserve.

Forrest 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."

Fed Chairman Ben Bernanke repeated in congressional testimony on Wednesday the Fed's pledge to act if the economy needed it as he underscored his concerns, specifically in the job market. Later in the day, the Fed's anecdotal Beige Book survey showed the economy is still struggling.

Honeywell Inc's profits topped consensus views in what it called a "tough macroeconomic environment," and its 6.7 percent advance to $58.18 made it a top gainer on the S&P industrial sector.

Intel's gains helped the PHLX semiconductor index <.SOX> rebound, as it jumped 3.6 percent a day after hitting its 2012 low.

"The main driver is technology and that is driven by Intel," said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles. "People were overly pessimistic on Intel and semiconductors in general going into Intel's report and guidance last night, so it's a 'buy the news.'"

Data storage equipment maker EMC Corp also boosted tech shares with an 9.4 percent gain to $25.08 after it replaced the head of its VMware Inc unit and reported a preliminary second-quarter profit. VMWare shares gained 12.1 percent to $89.98.

The Dow Jones industrial average <.DJI> gained 103.16 points, or 0.81 percent, to 12,908.70. The Standard & Poor's 500 Index <.SPX> rose 9.11 points, or 0.67 percent, to 1,372.78. The Nasdaq Composite Index <.IXIC> added 32.56 points, or 1.12 percent, to 2,942.60.

Financials underperformed the broad S&P 500, with the sector <.GSPF> slipping 0.6 percent. Bank of America Corp lost 4.9 percent to $7.53 after it posted a decline in revenue.

Vivus Inc shares jumped 9.6 percent to $29 after regulators approved the company's weight-loss drug.

Shares of Starbucks Corp fell as much as 2.7 percent Wednesday after Cleveland Research Co said sales momentum for the coffee maker slowed in June.

According to the report obtained by Reuters, analysts at Cleveland Research said they were trimming the company's comparable sales estimates for the Americas region 7 percent to 8 percent for the third quarter. It had expected comparable sales to grow 8 percent to 9 percent earlier.

Economic growth in the United States cooled in June and early July and hiring grew at a tepid pace in much of the country, the Fed said on Wednesday.

The Fed's previous Beige Book assessment of the economy, released on June 6, had painted growth in slightly more upbeat light, describing it as "moderate."

Groundbreaking on 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.

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 43.3 percent at $10.01.

About 6.26 billion shares changed hands on the New York Stock Exchange, the Nasdaq and Amex, compared with the 50-day moving average of 6.71 billion shares.

Advancers beat decliners by a ratio of more than 3 to 2 on the NYSE and by a similar ratio on the Nasdaq.

(Editing by Kenneth Barry)