US STOCKS-Stocks bounce after Fed-induced selloff

*

Micron, Lennar (LEN) fall after results

*

Banks firm as U.S. bond yields rise

*

Q3 GDP revised higher

*

Indexes up: Dow 0.56%, S&P 500 0.48%, Nasdaq 0.52%

(Updates to mid-afternoon trading)

By Chuck Mikolajczak

NEW YORK, Dec 19 (Reuters) - U.S. stocks rose on Thursday, bouncing modestly from a sharp drop in the prior session after the Federal Reserve forecasts fewer-than-expected interest rate cuts and higher inflation next year.

Economic data seemed to back up the Fed's view, with weekly initial jobless claims falling more than expected while gross domestic product for the third quarter was revised to show a 3.1% increase from the previously reported 2.8% pace.

"It clearly sent a message that rates weren't going to keep going down if inflation didn't continue its decline, and we've seen inflation tick up a bit here, and that's a concern to the Fed," said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.

"Today you would have expected, given the sell-off and the sharpness of it, you'd see a bounce today, and we are seeing one, it just isn't with a lot of conviction here."

The Dow Jones Industrial Average rose 235.23 points, or 0.56%, to 42,561.75, the S&P 500 gained 28.11 points, or 0.48%, to 5,900.05 and the Nasdaq Composite gained 99.50 points, or 0.52%, to 19,492.13.

The Dow was on track to snap a ten-session losing skid, its longest streak since 1974.

The Dow and S&P 500 suffered their biggest one-day percentage drop since early August, while the Nasdaq suffered its biggest daily fall since July after the Fed on Wednesday said it expects to make just two 25 basis point cuts in 2025, half a percentage point less than its September forecast for the first year of the new Trump administration.

Traders now see just one quarter-point rate reduction by mid-2025, and see less than two cuts in total by the end of the year, compared with last week's expectations of three rate cuts.

Longer-dated Treasury yields were higher after the economic data, with the benchmark 10-year note reaching a near 7-month high of 4.594%.

The CBOE volatility index, Wall Street's fear gauge, eased to 23.22 points after hitting a five-month high of 28.32 a day earlier.

Bank stocks rose 0.6% as a rise in yields tends to improve the profitability of lenders, while the incoming Trump administration is expected to loosen regulations on the sector.

Micron slumped 16.5% following its forecast of quarterly revenue and profit below estimates.

Homebuilder Lennar (LEN) lost 4.6% after reporting fourth-quarter results below estimates, pulling the PHLX housing index down by 2.1%.

Declining issues outnumbered advancers by a 1.44-to-1 ratio on the NYSE but advancers outnumber decliners by a 1.02-to-1 ratio on the Nasdaq.

The S&P 500 posted two new 52-week highs and 39 new lows, while the Nasdaq Composite recorded 27 new highs and 242 new lows.

(Reporting by Chuck Mikolajczak, additional reporting by Medha Singh and Purvi Agarwal in Bengaluru; Editing by Aurora Ellis)