US STOCKS-Wall St rallies as hopes grow for more Fed stimulus

* Facebook hits new low after results

* S&P 500 nearing levels not seen since May

* Merck shares rise after earnings

* Dow up 0.9 pct, S&P up 1.2 pct, Nasdaq up 1.5 pct

By Anna Louie Sussman

NEW YORK, July 27 (Reuters) - Wall Street rose on Friday on growing hopes of further stimulus from the Federal Reserve and the European Central Bank, as U.S. economic growth slowed in the second quarter.

U.S. gross domestic product growth slowed to a 1.5 percent annual rate in the second quarter as consumers spent at their most sluggish pace in a year. While economists expected worse, it was weak enough to keep hope alive for an additional round of Fed stimulus.

The Federal Reserve meets next week, and the market is looking for signs of additional monetary stimulus. The ECB also meets, with expectations for action overseas also rising after comments Thursday from ECB President Mario Draghi.

"There continues to be excitement over potential change in policy, both from the ECB and the FOMC. That's the only reason the market's up," said Ken Polcari, managing director at ICAP Equities in New York.

Merck & Co gave the biggest boost to the Dow after the drugmaker reported better-than-expected quarterly earnings, with strong sales growth of its vaccines and treatments for diabetes and HIV. The stock rose 3.4 percent to $44.82.

The Dow Jones industrial average was up 119.88 points, or 0.93 percent, at 13,007,81. The Standard & Poor's 500 Index was up 16.35 points, or 1.20 percent, at 1,376.37. The Nasdaq Composite Index was up 42.05 points, or 1.45 percent, at 2,935.30.

The benchmark S&P 500 index is up nearly 1.1 percent for the week, putting it on track for its third straight weekly advance. The index has hovered near 1,380 for the past week, its highest levels since May, which may bring out sellers who expect the market to run into trouble soon.

On Thursday, stocks leapt nearly 2 percent and erasing much of the losses for the week as ECB chief Mario Draghi said he would do whatever it takes to save the euro. Adding fuel to the fire, the French daily Le Monde reported on Friday morning that euro- zone governments and the ECB are preparing to take action to bring down borrowing costs for Spain and Italy. [ID: nL6E8IRBC2]

Uri Landesman, president of Platinum Partners in New York, described the market as "getting frothy," adding that "the bulls are trying their last gasp because Draghi says he is going to buy some bonds.

"The problem is way too deep for central banks to dig us out of, and that is going to become evident both in the news and the market over the next couple of months," Landesman said. "I expect a really rough rest of the summer."

Facebook Inc shares tumbled 17 percent to an all-time low of $22.28 a day after the social media company reported a drastic slowdown in revenue growth on Thursday and failed to offer financial forecasts that quelled fears about its ability to boost advertising growth. At midday on Friday, Facebook's stock had recovered some of that sharp loss, but it was still down 9.4 percent at $24.32.

In contrast, Amazon shares rose 6.9 percent to $235.29 after reporting improved profit margins on Thursday after the bell.

Optimism over further stimulus measures has helped offset a mixed U.S. corporate earnings season, with many companies beating profit forecasts, but often missing revenue projections and warning about sluggish global growth.

Through Friday morning, of the 290 in the S&P 500 that have reported second-quarter earnings, about two-thirds have beaten analysts' expectations, according to Thomson Reuters data.

Starbucks Corp cut its outlook for the current quarter, citing global economic weakness and a recent slowdown in visits to its coffee shops in the United States, its biggest market for sales and profits. Its stock lost 11 percent to $46.66.