* Philly Fed far stronger than expected in March
* Financial stocks among the day's biggest gainers
* Yellen raises uncertainty about timing of rate hike
* Dow up 0.7 pct; S&P 500 up 0.6 pct; Nasdaq up 0.4 pct (Updates to afternoon trading)
NEW YORK, March 20 (Reuters) - U.S. stocks rose on Thursday, boosted by a read on factory activity that was much stronger than expected, which offset the prospect of an earlier-than-expected rate hike.
Wall Street opened lower, but reversed course after the Philadelphia Federal Reserve Bank said its business activity index rose far more than expected in March, rebounding after a contraction in February. In another positive report, jobless claims rose less than expected in the latest week.
The data "shows that fundamentals are getting stronger every day, and that strength is getting firmer," said Frank Davis, director of sales and trading at LEK Securities in New York.
Financial shares, which are tied to the pace of economic growth, were among Thursday's biggest gainers, with the S&P financial sector index up 1.7 percent. JPMorgan Chase & Co gained 3.5 percent to $60.32, rising above $60 for the first time since April 2000. Citigroup Inc shot up 2.6 percent to $50.22.
AT&T Inc ranked among the top percentage gainers in both the Dow and the S&P 500, rising 2.5 percent to $33.78.
In her first press conference as chair of the Federal Reserve, Janet Yellen on Wednesday indicated that the first increase in interest rates could come in the first half of next year. She estimated the "considerable period" between the end of the Fed's stimulus and its first rate increase at possibly six months. Analysts widely expected a hike in the second half of 2015.
"We're trying to decipher her timeframe and get ahead of it," Davis said. "While we didn't make any drastic changes to our positions as a result of what she said, we have a tight watch on her to figure out how she'll play her hand."
The Dow Jones industrial average gained 107.66 points, or 0.66 percent, to 16,329.83. The Standard & Poor's 500 Index advanced 10.63 points, or 0.57 percent, to 1,871.40. The Nasdaq Composite Index rose 15.10 points, or 0.35 percent, to 4,322.71.
The S&P 500 is within 1 percent of its record closing high, but volume has been anemic on positive market days, suggesting limited conviction behind the move. According to the latest Reuters poll of analysts, the S&P 500 is expected to end 2014 at 1,950, less than 5 percent above current levels.
Volume is expected to surge on Friday as options expiration takes place alongside multiple index rebalances. Credit Suisse estimates $14 billion in gross trading will stem from the S&P 500 index rebalance, with another $6 billion coming from rebalancing in other indexes.
Geopolitical concerns stayed in focus as Russian troops seized two Ukrainian naval bases, including a headquarters in the Crimean port of Sevastopol.
President Barack Obama announced sanctions on Thursday against prominent Russians, including close allies of President Vladimir Putin, as Moscow raced to complete its annexation of Crimea and built up its forces in the region. The
United States warned Russia that it was on a "dark path" to isolation in the biggest crisis between the two countries since the Cold War.
While few U.S. companies have outsized exposure to the region, investors are concerned about the fallout from any escalation in tension.
Lennar Corp reported a sharp jump in its first-quarter profit, helped by higher prices. The results came a day after KB Home posted similarly strong results in a bullish read on the housing market.In Thursday afternoon trading, Lennar's shares fell 1.9 percent to $40.56 and KB Home lost 3 percent to $18.16.
Jabil Circuit Inc forecast 2015 core earnings above Wall Street's estimates as the struggling contract electronics maker expects to recover from the loss of its business with BlackBerry Ltd . Jabil Circuit's stock slid 2.1 percent to $17.87.
First Solar rose 4.1 percent to $72.27 and was among the S&P 500's biggest gainers, building on its jump of more than 20 percent on Wednesday after the company gave a strong outlook. The stock is on track for its fifth straight daily rise, gaining almost 40 percent over that period.
On the downside, the Nasdaq's gains were limited by weakness in large-cap internet shares. Amazon.com Inc fell 1.3 percent to $368.46 while Yahoo Inc dropped 1.1 percent to $38.20. (Editing by Nick Zieminski and Jan Paschal)