Bargain hunting buoys stocks after weak data

NEW YORK (Reuters) - U.S. stocks edged higher on Wednesday as an early session decline through a key technical level on the S&P prompted buying, despite weak economic data that dimmed hopes for a robust recovery.

Adding to Tuesday's dismal home sales data, new U.S. single-family home sales slumped to a record slow pace in July, while orders for costly durable goods rose far less than anticipated.

"Overall this is still a very careful market," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

"Until we see a package of decidedly positive data, this market is going to be vulnerable."

Bank stocks, with their exposure to the housing market, slid for a fifth day in a row on the July home sales data. The KBW bank index briefly hit 42.70, its lowest level in 2010. The index was down almost 1 percent and has lost more than 6 percent in the last week.

Nonetheless, the S&P 500 found support at 1,040, a level closely watched by chartists. The benchmark index hit lows in the 1,040 area in February, May and early June, indicating some investors may see a dip below it as a buying opportunity.

"At a level like 1,040, where a lot of people are watching, you're going to get a little bit of a bounce," said Paul Hickey, co-founder of research firm Bespoke Investment Group in Harrison, New York.

The Dow Jones industrial average added 24.18 points, or 0.24 percent, to 10,064.63. The Standard & Poor's 500 Index rose 3.03 points, or 0.29 percent, to 1,054.90. The Nasdaq Composite Index gained 12.67 points, or 0.60 percent, to 2,136.43.

Energy shares dragged on the S&P 500 as coal miners dropped on concerns that power plants would switch to natural gas from coal as the price of gas fell.

Massey Energy tumbled 4.5 percent to $28.80 and Arch Coal Inc dropped 2.9 percent to $21.76.

Among the laggards in the bank sector, Wells Fargo & Co fell 0.6 percent to $23.49, while Suntrust Banks lost 1.5 percent to $22.83.

Healthcare stocks, among the least sensitive to economy swings, outperformed the overall market.

Coventry Health Care Inc gained 4.3 percent to $20.22, and the S&P health stocks sector added 0.8 percent, rebounding from a 2 percent loss on Tuesday.

Both luxury homebuilder Toll Brothers Inc and apparel retailer American Eagle Outfitters Inc rallied after reporting quarterly results. Toll gained 4.9 percent to $17, and American Eagle was up 7.6 percent at $13.44.

(Editing by Padraic Cassidy)