* Stocks spike on WSJ report that U.S. may lift China tariffs
* Financials cut losses after sliding earlier in the day
* Morgan Stanley falls on profit miss
* Lockheed, Northrop gain on U.S. missile defense strategy
* Dow up 0.5 pct, S&P up 0.6 pct, Nasdaq up 0.6 pct (Updates to mid-afternoon, adds NEW YORK dateline, changes byline)
By April Joyner
NEW YORK, Jan 17 (Reuters) - U.S. stocks advanced on Thursday as a published report that the United States was considering lifting tariffs on Chinese imports lifted investor sentiment.
U.S. Treasury Secretary Steven Mnuchin discussed lifting some or all tariffs imposed on Chinese imports and suggested offering a tariff rollback during trade discussions scheduled for Jan. 30, the Wall Street Journal reported on Thursday, citing people familiar with the internal deliberations.
Stocks spiked higher after having posted modest gains in early afternoon trading, though they pared gains slightly after a Treasury spokesperson told CNBC that Mnuchin had not made any such recommendations.
Industrial stocks, which have been sensitive to trade developments, jumped 1.4 percent after the report. They had earlier erased early losses as shares of defense contractors Northrop Grumman Corp and Lockheed Martin Corp rose after President Donald Trump unveiled a revamped U.S. missile defense strategy.
Shares of Apple Inc, which had previously warned of weaker sales in China, rose 0.5 percent.
The S&P 500 financial index rebounded to trade 0.5 percent higher after having dropped as much as 1 percent after Morgan Stanley reported a lower-than-expected quarterly profit. The investment bank’s shares were 3.7 percent lower.
With Thursday’s gains, the financial index is on track to post gains for seven straight sessions.
“The expectations bar has been lowered coming into earnings season,” said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut. “The banks’ numbers weren’t that great, aside from Bank of America and Goldman Sachs. But they’re holding their ground.”
The Dow Jones Industrial Average rose 127.84 points, or 0.53 percent, to 24,335, the S&P 500 gained 16.03 points, or 0.61 percent, to 2,632.13 and the Nasdaq Composite added 39.75 points, or 0.56 percent, to 7,074.44.
The S&P remains about 10.5 percent away from its Sept. 20 record close after a recent rally saw it claw back from a 20-month low on Christmas Eve on concerns over a global economic slowdown.
Shares of Netflix Inc, which is scheduled to report quarterly results after the bell, rose 0.3 percent. The video-streaming company raised U.S. subscription rates this week.
Analysts have cut their fourth-quarter profit growth forecast for S&P 500 companies to 14.2 percent from 20.1 percent estimated on Oct. 1, according to IBES data from Refinitiv.
Advancing issues outnumbered declining ones on the NYSE by a 1.54-to-1 ratio; on Nasdaq, a 1.34-to-1 ratio favored advancers.
The S&P 500 posted one new 52-week high and no new lows; the Nasdaq Composite recorded 24 new highs and 17 new lows. (Reporting by April Joyner in New York; Additional reporting by Medha Singh and Amy Caren Daniel in Bengaluru; editing by Anil D’Silva and James Dalgleish)