* GE, IBM shares drop after earnings
* Preliminary July UMich reading misses expectations
* Indexes up: Dow 0.51 pct, S&P 0.65 pct, Nasdaq 1.05 pct (Updates to late morning, updates earnings data)
By Chuck Mikolajczak
NEW YORK, July 18 (Reuters) - U.S. stocks rebounded modestly on Friday, after the S&P 500 suffered its worst decline since April 10 a day earlier, with the benchmark index on pace to post a slight gain for the week.
Market participants will keep a close eye on geopolitical tensions, as the United States said Friday it could not rule out that Russia may have assisted separatists in firing a missile that likely downed a Malaysian airliner Thursday at the Ukraine-Russia border, killing nearly 300 people. Investors were also wary as Israel began a Gaza ground campaign on Thursday.
The CBOE Volatility index dropped 14.3 percent to 12.46, after a 32 percent surge to 14.54 in the prior session - its biggest jump since April 2013. The index still remains well below its historical average of around 20.
Google Inc gained 2.9 percent to $597.44 as the biggest boost to the S&P 500 after the world's No.1 Internet search company posted second-quarter results and said its chief business officer would leave the company.
"It seems counter-intuitive given the ruthlessness with which the market sold off yesterday, but in the broader context the markets are generating a lot of attractive themes," said Peter Kenny, chief market strategist at Clearpool Group in New York.
"We have an economy that is expanding - we have many data points that support that narrative - we are in the middle of earnings season and earnings season has given investors reason to believe that what we have seen in the headlines over the last day or two, though very important, aren't what is driving investment decisions."
General Electric shed 1 percent to $26.34 after the conglomerate posted growth in second-quarter earnings that matched expectations.
Fellow Dow component IBM also lost ground, down 0.3 percent to $191.95, after the world's largest technology company reported its software business grew less than expected even as quarterly earnings beat analysts' expectations.
But Honeywell International, a maker of aircraft cockpit parts and other electronic equipment, raised the lower end of its 2014 profit forecast range and reported better-than-expected quarterly profit. Its shares gained 1 percent to $96.09
The Dow Jones industrial average rose 86.99 points or 0.51 percent, to 17,063.8, the S&P 500 gained 12.8 points or 0.65 percent, to 1,970.92 and the Nasdaq Composite added 45.72 points or 1.05 percent, to 4,409.17.
For the week, the S&P 500 is up 0.1 percent, the Dow is up 0.7 percent and the Nasdaq is down 0.2 percent.
The Thomson Reuters/University of Michigan's preliminary July reading on the overall index on consumer sentiment came in at 81.3, slightly below the consensus analyst expectation and the final June read, but a gauge of future economic activity by the Conference Board supported views of a stronger second half for the economy.
S&P 500 companies' profits are expected to grow 5 percent in the second quarter, according to Thomson Reuters data, down from the 8.4 percent growth forecast at the start of April. Revenue is seen up 3.2 percent.
Thomson Reuters data also shows that of 82 companies in the S&P 500 that reported earnings through Friday morning, 68.3 percent beat Wall Street expectations, roughly in line with the 67 percent rate for the past four quarters and above the 63 percent rate since 1994. (Editing by Bernadette Baum)