(Corrects to show S&P up 0.25 pct this week, not 2 percent, in paragraph 11)
* DJ Transportation Average hits intraday record high
* S&P 500 on track to post 4th straight month of gains
* J.C. Penney, Groupon both sink on weak revenue
* Dow up 0.4 pct, S&P up 0.5 pct, Nasdaq up 0.6 pct
By Rodrigo Campos
NEW YORK, Feb 28 U.S. stocks rose modestly on low volume on Thursday after strong economic data, but the proximity of record highs for the Dow and the S&P 500 gave investors a reason to keep gains in check.
The U.S. economy grew slightly in the fourth quarter, reversing an earlier estimate showing contraction, and a drop in new claims for unemployment benefits last week added to a string of data that suggests the economy improved early this year.
Still, an even higher revision to GDP data was expected, and the jobless claims extended a trend baked into stock prices.
The low volume shows a lack of conviction from new buyers, according to Ken Polcari, director of the NYSE floor division at O'Neil Securities in New York.
Polcari the recent gains are the reaction to Monday's selloff, but there are not enough catalysts to take indexes much higher.
"Don't expect the market to hit new highs today," he said.
In afternoon trading, just over 3 billion shares had changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT.
The Dow was within striking distance of its record high after a year-to-date advance of almost 8 percent. The Dow Jones Transportation Average, seen as a bet on future growth, is up 13 percent this year, and the 20-stock index hit a record intraday high earlier on Thursday.
The Dow Jones industrial average rose 61.32 points or 0.44 percent to 14,136.69. The S&P 500 gained 8.03 points or 0.53 percent to 1,524.02. The Nasdaq Composite added 17.14 points or 0.55 percent, to 3,179.67.
The Dow's record closing high, set on Oct. 9, 2007, stands at 14,164.53, while the Dow's intraday record high, set on Oct. 11, 2007, stands at 14,198.10.
The S&P 500 is up 0.25 percent this week and is on track to post its fourth straight month of gains.
Equity markets suffered steep losses earlier in the week on concerns about the impact of an Italian election on the European economy, but stocks bounced back on strong data and recent comments by Federal Reserve Chairman Ben Bernanke that showed continued support for the Fed's economic stimulus policy.
Gains in Limited Brands and Netflix, both up nearly 4 percent, led the way among consumer stocks. Shares of Limited Brands, the parent of retailers Victoria's Secret and Bath & Body Works, shot up 3.8 percent to $46.21. The stock of video streaming service Netflix jumped 3.8 percent to $191.24.
In contrast, shares of J.C. Penney, however, slid 14.9 percent to $18.01 after the department store operator reported a steep drop in sales on Wednesday. Groupon Inc also fell on weak revenue, with the daily deals company's stock off 19.2 percent at $4.83.
Cablevision shares tumbled 8.8 percent to $14.11 after the cable provider took a $100 million hit on costs related to Superstorm Sandy and posted deeper video customer losses than expected.
On a positive note, Mylan Inc shares were on track to close at their highest ever after the generic drugmaker posted a 25 percent rise in fourth-quarter profit and said it will buy a unit of India's Strides Arcolab Ltd. Mylan's stock gained 4.2 percent to $29.78.
Investors were keeping an eye on the debate in Washington over U.S. government budget cuts that will take effect starting Friday if lawmakers fail to reach agreement on spending and taxes. President Barack Obama and Republican congressional leaders arranged last-ditch talks to prevent the cuts, but expectations were low that any deal would emerge.
With 93 percent of the S&P 500 companies having reported results so far, 69.5 percent have beaten profit expectations, compared with a 62 percent average since 1994 and 65 percent over the past four quarters, according to Thomson Reuters data.
Fourth-quarter earnings for S&P 500 companies are estimated to have risen 6.2 percent, according to the data, above a 1.9 percent forecast at the start of the earnings season. (Reporting by Rodrigo Campos; Additional reporting by Ryan Vlastelica; Editing by Nick Zieminski and Jan Paschal)