Wall Street pares gains on new questions over Greece

NEW YORK (Reuters) - Stocks pared gains in a volatile session on Wednesday as new questions arose about Greece's political and economic future.

Some fears were allayed after comments from German Chancellor Angela Merkel suggested the euro zone was committed to keeping Greece in the union, but caution reentered the market after sources told Reuters that the European Central Bank had stopped monetary policy operations to some Greek banks as recapitalization wasn't in place.

"People are waiting to see what will happen with Europe, the line in the sand for taking some kind of action is getting closer," said Reed Choate, portfolio manager at Neville, Rodie & Shaw in New York.

"It's a positive that there seems to be support for keeping Greece in the euro zone, but at the same time you can't fight central bank policy."

Worries about Greece's political and financial future have driven equity losses in recent weeks, and Merkel's comments at a joint press conference with new French President Francois Hollande were seen as partly alleviating those fears.

Opinion polls show leftists opposed to the terms of the bailout that is keeping Greece afloat would likely win the new election, set for June 17. Greeks, afraid of the devaluation that would follow an exit from the euro, withdrew at least 700 million euros from their banks on Monday.

The Dow Jones industrial average was up 13.93 points, or 0.11 percent, at 12,645.93. The Standard & Poor's 500 Index was up 1.31 points, or 0.10 percent, at 1,331.97. The Nasdaq Composite Index was down 0.09 points, or 0.00 percent, at 2,893.67.

Some investor sentiment was boosted by strong housing and industrial data. Industrial shares rose 0.7 percent, the top gaining S&P sector as production rose in April at its fastest pace in over a year. A rebound in groundbreaking for U.S. homes in April suggested the housing market recovery was gaining some traction.

General Electric Co shares climbed 3.5 percent to $19.05 as its finance arms won regulatory approval to resume returning some of its profit to the parent company, a move that could clear the way for GE to accelerate stock buybacks and raise its shareholder dividend.

GE Capital plans to pay a special $4.5 billion dividend to GE, the biggest U.S. conglomerate, later this year.

The minutes from the Federal Reserve's April meeting, due at 2 p.m. (1800 GMT), will be scrutinized for any discussion on the health of the labor market as investors debate the likelihood of more stimulus measures.

The Fed meeting took place before the first Greek election, so they will not likely include clues on how the Fed is going to respond if the European crisis deepens.

J.C. Penney shares tumbled 17 percent to $27.74 a day after the department store owner scrapped its dividend and showed its effort to remake itself as an affordable fashion-oriented retail chain took a much bigger-than-expected toll on sales in the first quarter. The stock was the S&P's biggest percentage loser.

Target Corp rose 0.5 percent to $55.36 after it raised its full-year profit view.

Facebook Inc increased the size of its initial public offering by 25 percent and could raise as much as $16 billion as strong investor demand for the No. 1 social network trumps debate about the company's long-term potential to make money.

(Editing by Dave Zimmerman)