US STOCKS-Wall St on track to close at 4-mth high on Merkel, Cisco

* Germany's Merkel says leaders are on track

* Jobless claims edge higher, July housing starts fall

* Facebook falls as lockup of some insider shares ends

* Indexes up: Dow 0.6 pct, S&P 0.7 pct, Nasdaq up 1 pct

By Angela Moon

NEW YORK, Aug 16 (Reuters) - U.S. stocks rose on Thursday following comments from German Chancellor Angela Merkel that appeared to back the European Central Bank's efforts to fight the euro zone crisis, while Cisco Systems jumped after it hiked its dividend.

The S&P 500 was on track to hit a four-month closing high in the first significant market move in over a week. Traders are looking for a convincing break in the index above the 1,400 level where the market stalled after a 2 percent rally on Aug. 3.

"I think the biggest plus today is the fact that people realize that we are now really in an upward trend. We faced resistance but for over a week, we moved higher slowly without a significant pullback. That is what's pulling people in, although volume remains low," said Frank Gretz, market analyst at Wellington Shields & Co in New York.

"Some say we are climbing 'the wall of worry.' I think we are 'climbing the wall of low expectations.' Because nobody is expecting anything good, it is easy to move up in any news."

Merkel said ECB chief Mario Draghi's vow to do all that is necessary to defend the euro is in line with what European leaders have been saying. Some traders took that as a sign Germany may be drawing nearer to backing purchases of sovereign bonds of troubled European nations such as Spain.

The yield on the Spanish 10-year bond hit its lowest level in a month, falling to 6.57 percent.

Cisco Systems Inc rose nearly 10 percent to $19.02 after the company said it would hike its dividend 75 percent after surprisingly strong results late Wednesday. The dividend increase countered a gloomy outlook from Cicso on the debt crisis and recession in Europe.

But gains were capped as Wal-Mart shed 3 percent to $72.25. The world's largest retailer posted a bigger-than-expected jump in quarterly profit but forecast full-year earnings that could fall short of Wall Street expectations.

Wal-Mart traditionally marks the end of the U.S. earnings season. Thomson Reuters data shows that of the 468 companies in the S&P 500 that have reported earnings through Thursday morning, 68 percent beat analysts' expectations, about the same rate as over the past four quarters.

Earnings were the bigger driver given the economic data was largely in line with forecasts. The number of Americans filing new claims for jobless benefits edged higher last week although the gaugee of a longer trend fell close to a four-year low, indicating a slowly healing jobs market.

But housing starts unexpectedly dropped 1.1 percent last month as the industry continues to have trouble finding its footing despite some recent signs of life in the sector.

The Dow Jones industrial average was up 83.13 points, or 0.63 percent, at 13,247.91. The Standard & Poor's 500 Index was up 9.50 points, or 0.68 percent, at 1,415.03. The Nasdaq Composite Index was up 30.51 points, or 1.01 percent, at 3,061.44.

The S&P capped its longest string of gains since December 2010 on Aug. 10, boosted by expectations of more stimulus from central banks in the United States and euro zone in September to stimulate their respective economies.

Facebook Inc fell to a new low of $19.69 earlier as shares hit the market after the expiration of a lockup period, which had prevented sales by some insiders.

Retailer Sears Holdings Corp reported a quarterly loss in line with Wall Street estimates as lower expenses offset weak sales. Shares rose 6.1 percent to $60.03.

Dollar Tree fell 1.4 percent to $49.29 after the discount retailer posted second-quarter earnings and forecast quarterly earnings and sales below analysts' expectations.