US STOCKS-S&P hits 1,400 on hopes for central bank action
* Elan Corp shares slide as Pfizer, J&J scrap drug
* Standard Chartered shares tumble in London
* Indexes up: Dow 0.7 pct, S&P 0.9 pct, Nasdaq 1.3 pct
By Anna Louie Sussman
NEW YORK, Aug 7 (Reuters) - U.S. stocks rose for a third day on Tuesday in light volume, pushing the S&P 500 above 1,400 for the first time since early May, on cautious optimism the European Central Bank will act soon to contain the bloc's debt crisis.
Markets continued their rise after an upswing on Friday when investors embraced ECB President Mario Draghi's comments about restoring calm to the euro zone's troubled bond markets.
Since then, good news out of Greece and declines in Spanish and Italian yields from peaks above 7 percent have kept sentiment positive. The period of relative calm allowed the S&P to break through the psychologically important 1,400 after trying unsuccessfully the past couple of sessions.
"Lots of people are starting to discount the fundamental issues in Europe and are now embracing risk. Spanish yields have come in, so the fire is not out, but they seem to be containing it better," said David Lutz, head of ETF trading at Stifel Nicolaus Capital Markets in Baltimore.
However, volumes are light due to summer holidays, and the real tests for markets may come in September. The ECB is expected to face decisions about controling the euro zone debt crisis and the Federal Reserve could add stimulus to aid the flagging U.S. economic recovery.
The Dow Jones industrial average gained 91.55 points, or 0.70 percent, to 13,209.06. The Standard & Poor's 500 Index gained 12.48 points, or 0.90 percent, to 1,406.71. The Nasdaq Composite Index gained 37.28 points, or 1.25 percent, to 3,027.19.
Investors were betting that a larger-than-expected fall in German industrial orders in June will underscore the importance of quick action from the ECB. Germany's economy has fared better than those at Europe's periphery, but several large German manufacturing companies said demand from Europe and emerging markets had slowed.
Volume was light, with about 2.02 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq near midday. Average daily volume in 2012, to date, is 6.69 billion.
"Europe is getting on its feet. There's a lack of negative news more so than any positive news, so people are just breathing and watching and hoping that Europe can get its act together," said Joseph Benanti, managing director of Rosenblatt Securities in New York.
"We don't really have great volume on this, so there's not a lot of conviction behind the rally," said Benanti.
Despite worries over European and U.S. economies, the S&P 500 index is up more than 11 percent so far this year. Yield-hungry investors have kept buying stocks as U.S. and German government bond prices soar and yields hit historic lows.
A group of investors rescued Knight Capital Group in a $400 million deal that kept the market maker in business, but existing shareholders were nearly wiped out. Knight shares were up 3.9 percent at $3.19 but were down 77 percent from an October high of $14.
Drugstore chain CVS Caremark's shares were down 1.6 percent to $44.20 after a rise to $45.90 in premarket trading on a strong earnings report and brighter forecast for the year.
Pfizer and Johnson & Johnson scrapped further studies of an experimental drug for Alzheimer's disease after the drug failed in a second trial. U.S.-traded shares of their partner, Elan Corp, dropped 3 percent to $10.91. Pfizer shares fell 1.7 percent to $23.84 and J&J edged 0.7 percent lower to $68.39.
Statements by U.S. policymakers showed Fed officials hold divergent views about what to do about the economy. Boston Fed President Eric Rosengren said in a New York Times interview the Fed should expand its holdings of mortgage bonds and Treasury securities until it is satisfied with the health of the economy.
But on Monday Dallas Federal Reserve President Richard Fisher told Reuters new steps by the Fed to stimulate the economy so close to a presidential election would be a mistake.
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