* U.S. manufacturing gains offset weak overseas data
* Investors see potential stock gains despite U.S. budget cuts
* Chesapeake shares drop after SEC escalates investigation
* Groupon rallies after CEO exits
* Dow up 0.3 pct, S&P 500 up 0.3 pct, Nasdaq up 0.3 pct
NEW YORK, March 1 (Reuters) - U.S. stocks rose modestly on Friday as strong economic data outweighed growth concerns in China and Europe and let investors brush off worries about the impact of expected across-the-board U.S. goverment spending cuts.
Stocks opened sharply lower as Asian factories slowed and European output fell, but most of the losses dissipated after a report showed U.S. manufacturing activity expanded last month at its fastest clip in 20 months and put the S&P 500 index on track for a slight weekly gain.
U.S. consumer confidence also rose in February as Americans turned more optimistic about the job market.
With government budget cuts set to begin on Friday, President Barack Obama blamed Republicans for failure to reach a compromise to avert the cuts, known as sequester. But the stock market appeared to have already priced in the failure by legislators to reach an agreement.
"The positive manufacturing data, better than expected, sends a signal the economy itself, and manufacturing in particular, is showing signs of strength - trumping any concern that people seem to have with the sequester cuts," said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis.
The Dow Jones industrial average gained 40.43 points, or 0.29 percent, to 14,094.92. The Standard & Poor's 500 Index added 4.01 points, or 0.26 percent, to 1,518.69. The Nasdaq Composite Index rose 9.56 points, or 0.30 percent, to 3,169.75.
For the week so far, the Dow is up 0.7 percent, the S&P 500 is up 0.2 percent and the Nasdaq is up 0.3 percent.
The low interest rates due to the Federal Reserve's accommodative monetary policy have helped equities continue to attract investors. The Dow is less than 1 percent away from its all-time intraday high of 14,198.10. Declines have been shallow and short-lived, with investors jumping in to buy on dips.
Intuitive Surgical jumped 8.7 percent to $554.43 after Cantor Fitzgerald analyst Jeremy Feffer upgraded the stock, saying the stock's more than 11 percent slide on Thursday was a gross overreaction to a news report.
Groupon Inc surged 12.2 percent to $5.08 a day after the online coupon company fired its chief executive officer in the wake of weak quarterly results.
Gap Inc rose 3 percent to $33.87 after reporting fourth-quarter earnings that beat expectations and boosting its dividend by 20 percent, while Salesforce.com Inc posted sales that beat forecasts, driving its stock up 7.1 percent to $181.28.
Chesapeake Energy Corp fell 2.2 percent to $19.71 after the U.S. Securities and Exchange Commission escalated its investigation into the company and its Chief Executive Aubrey McClendon for a controversial perk that granted him a share in each of the natural gas producer's wells.