* U.S. GDP revised sharply downward, but other data stronger than expected
* S&P sets intra-day high, leading European shares to rebound
* Euro at year's high as inflation stabilizes, cooling ECB expectations
By Herbert Lash
NEW YORK, Feb 28 Stocks on Wall Street zoomed to a new high on Friday, shrugging off a revised downward estimate to U.S. growth, while the euro hit its highest level this year after inflation in Europe stabilized, cooling expectations of looser monetary policy.
The benchmark Standard & Poor's 500 stock index surged to an intraday record after a round of mostly positive economic data. A weaker-than-expected read on U.S. gross domestic product, however, cast some doubt on the outlook for growth and whether higher equity valuations are warranted.
American GDP expanded at a 2.4 percent annual rate in the fourth quarter, down sharply from the 3.2 percent pace estimated in January and 4.1 percent logged in the third quarter, the Commerce Department said.
But the pace of business activity in the U.S. Midwest rose slightly in February, beating expectations and snapping a three-month run of slower growth, the business barometer from the Institute for Supply Management-Chicago showed.
Also, contracts to buy previously owned U.S. homes edged up in January after a weather-related hit at the end of 2013, and U.S. consumer sentiment rose marginally in February even as concerns about extreme weather persisted, a survey showed.
"The million-dollar question is how much of the slowdown is because of the weather, and how much is because of the economy getting weaker?" said Bill Stone, chief investment strategist at PNC Wealth Management in Philadelphia, with $125 billion in assets under management.
"The market continues to believe that weather is behind most of it, and we generally agree with that, but we will need to see a pick-up" in growth, he added.
MSCI's all-country world equity index rose 0.62 percent, while stocks in Europe rebounded on the relatively stronger U.S. data.
The Dow Jones industrial average rose 122.08 points, or 0.75 percent, at 16,394.73. The Standard & Poor's 500 Index was up 13.36 points, or 0.72 percent, at 1,867.65. The Nasdaq Composite
Earnings have beaten expectations, helping lift the U.S. equity market.
"If you look at how numbers came in for the fourth quarter, they were really pretty good; the problem was guidance and outlook was not so great," said Daniel Morris, global investment strategist at TIAA-CREF.
Optimism at the beginning of the year that the economy would accelerate has been tempered by corporate caution, he said. Danish shipper A.P. Moller-Maersk, seen as a bellwether for the global economy as its vessels account for 15 percent of global container shipping, gave a cautious outlook when it reported results on Thursday, Morris said.
"Companies aren't jumping up and down saying 'Hey, we're really optimistic.' That's what has weighed on the market."
European shares initially dipped as euro zone inflation data came in at 0.8 percent, one-tenth of a percentage point above expectations, lessening the prospect of new monetary stimulus measures from the European Central Bank.
The pan-European FTSEurofirst 300 index subsequently closed up 0.22 percent at 1,348.39.
The euro gained as traders had expected a slower pace of inflation in the euro zone and subsequent lower interest rates.
Major currency markets have been broadly stable as investors retreat from emerging markets to safer bets like the euro, dollar, yen and Swiss franc.
"The euro certainly looks good, everything is in place for more gains. But I wouldn't race out and buy it at the moment," said Graham Davidson, FX trader with NAB in London.
The euro rose 0.74 percent to 1.3810, its first time above $1.38 this year. The dollar slipped against the Japanese yen, falling 0.04 percent 102.07.
Oil had dropped below $109 a barrel as the revised U.S. GDP estimates curbed the demand outlook. The severe U.S. winter had supported oil prices earlier this year, but concerns about demand from the United States and China, the world's No. 1 and No. 2 oil consumers, have recently weighed on prices.
But crude prices rebounded on the stronger U.S. data.
Brent crude rose 25 cents to $109.21 a barrel. U.S. oil rose 41 cents to $102.81.
U.S. Treasury debt prices fell, reversing Thursday's gains, as stronger-than-expected economic data led to profit-taking and set the market on track for its biggest weekly loss in a month.
The 10-year U.S. Treasury note fell 10/32 in pricing, pushing its yield up to 2.6762 percent.