(Updates with U.S. markets, adds comments; dateline previously LONDON)
* 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 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 were down at the pre-open but 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.
Some investors remained concerned about the impact that prolonged turmoil in Iraq could have on oil prices, which are already up about 4 percent this month. Militants in Iraq attacked one of the country's largest air bases as the first U.S. teams arrived to assess Iraqi security forces and decide how to help counter the violence.
"Investors are still concerned about American foreign policy and what will be the next step in terms of any military intervention as opposed to diplomacy in the Middle East region," asset management firm B Capital's managing director Lorne Baring said.
The Dow Jones industrial average rose 39.6 points or 0.24 percent, to 16,857.73, the S&P 500 gained 4.17 points, or 0.21 percent, to 1,954.15, and the Nasdaq Composite added 5.385 points, or 0.12 percent, to 4,355.741.
Medical Action Industries was the biggest percentage gainer on Nasdaq, jumping 94 percent to $13.68 on its heaviest ever one-day volume after Owens & Minor Inc agreed to buy the company for about $208 million.
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 0.16 percent at 80.199.
U.S. government bond prices jumped on the unexpectedly big downward revision in first quarter GDP. The 10-year U.S. note yield stood at 2.5466 percent.
Europe's FTSEurofirst 300 stock index hit a one-month low, falling nearly 1 percent, the biggest decline since mid-April, to 1,374.28 points. The MSCI world equity index , which tracks shares in 45 countries, fell 0.1 percent, touching a one-week low at 425.84.
Yields of German government bonds, perceived as safe havens, fell to May 2013 lows. The German 10-year note yielded 1.266 percent versus Tuesday's 1.322.
In oil, Brent fell 0.9 percent to $113.60 a barrel, while U.S. crude advanced 0.2 percent to $106.20. (Additional reporting by Blaise Robinson in Paris; Atul Prakash, Marius Zaharia and Anirban Nag in London; Editing by Leslie Adler)