(Updates with midday markets)
* U.S. 1st-quarter GDP contracts more than previously thought
* Europe stocks fall; German bond yields at 2014 low
* Dollar index eases, Treasury yields down
By Barani Krishnan
NEW YORK, June 25 (Reuters) - Stocks on Wall Street rose on Wednesday despite disappointing U.S. economic data while German bond yields hit their lowest levels for the year as European investors moved toward safe havens.
The dollar and Treasuries yields fell after data showed the U.S. economy contracted more than previously thought in the first quarter and durable goods orders unexpectedly fell in May, which contrasted with Tuesday's stronger-than-expected data for consumer confidence and new home sales.[ID:nL2N0P60H3}
U.S. stock futures initially fell on the economic data, but stocks rose as trading progressed, with the S&P 500 and Dow hovering within striking distance of record levels.
"As long as investors believe the economy will keep growing, and everyone expects growth in the second quarter, the lesser evil will be to buy equities at a modestly higher valuation, since bonds and cash don't represent better values," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.
The Dow Jones industrial average rose 27.67 points, or 0.16 percent, to 16,845.8, the S&P 500 gained 4.98 points, or 0.26 percent, to 1,954.96, and the Nasdaq Composite added 14.46 points, or 0.33 percent, to 4,364.82.
The S&P 500 hit an intraday record high on Tuesday before concerns over Iraq turned indexes sharply lower in afternoon trading. On Wednesday, militants attacked one of Iraq's largest air bases as the first U.S. teams arrived to decide how to help counter the violence. .
The dollar slid to a one-month low against a basket of major currencies after the weak U.S. gross domestic product and durable goods orders data signaled the likelihood of a continued dovish stance from the Federal Reserve.
The dollar index, which measures the greenback versus a basket of currencies, was down 0.18 percent at 80.184.
U.S. government bond prices jumped on the unexpectedly big downward revision in first-quarter GDP. The yield U.S. 10-year note stood at 2.5574 percent.
Europe's FTSEurofirst 300 stock index hit a one-month closing low, falling 1 percent in the biggest decline since mid-April to 1,372.04 points. The MSCI world equity index , which tracks shares in 45 countries, fell 0.12 percent, touching a one-week low at 425.84.
Yields of German government bonds, perceived as safe havens, fell to the lowest level since May 2013 lows. The German 10-year note yielded 1.263 percent versus Tuesday's 1.322 percent.
In oil, Brent fell 0.4 percent to $114 a barrel, while U.S. crude advanced 0.4 percent to $106.48. For the month, though, both crude oil grades are up about 4 percent on fears of protracted turmoil in Iraq. (Additional reporting by Blaise Robinson in Paris; and Atul Prakash, Marius Zaharia and Anirban Nag in London; Editing by Leslie Adler)