UPDATE 1-Morgan Stanley ups S&P 500 year-end target

* Raises S&P 500 .SPX year-end target to 900 from 825

* Ups '09 earnings estimates to $51 from $40

* Ups '10 earnings estimates to $62 from $57

* Sees $265 bln profit excl items for financial sector

June 16 (Reuters) - Morgan Stanley raised its year-end target on Standard & Poor's 500 Index .SPX, as well its earnings estimates for 2009 and 2010, but said it remained cautious on the market and does not believe the current rally represents the beginning of a new bull market.

However, provided there is no significant change in data momentum, any sell-off should still leave the market well off the prior lows, the brokerage said.

"Equity markets now implicitly need a V-shaped recovery to sustain further gains. We do not expect such a recovery and therefore believe the next move is more likely to be down than up," the brokerage said. [ID:nWNAB0207]

The financial and information technology sectors are driving its earnings upgrade, Morgan Stanley said in a note to clients.

Morgan Stanley had initially expected the financial sector to record another loss in 2009 but it now expects the sector to record earnings of as much as $265 billion before taxes and provisions.

Morgan Stanley said technology sector accounted for roughly $2 per share of the increase in both its 2009 and 2010 estimates, but added that it was more circumspect than the consensus on the earnings outlook for Tech through year-end and into 2010.

"While profitability is clearly improving, it is a leap to suggest IT budgets will immediately increase," it said.

Morgan Stanley said it was cautious on the size of the boost in earnings from the replacement cycle, while corporate profitability remains weak.

Morgan Stanley also said historically, Microsoft's (MSFT.O) new software releases have often come with disappointment, which may prove the case with its upcoming Windows 7 release. (Reporting by Jennifer Robin Raj in Bangalore; Editing by Gopakumar Warrier)