US STOCKS-Wall Street rallies as ongoing Middle East peace negotiations boost sentiment

(Updates to mid-afternoon trading)

* Indexes up: Dow 0.65%, S&P 500 0.50%, Nasdaq 0.57%

* S&P 500 breaks back above 100-day, 200-day moving averages

* PCE, GDP data show inline inflation, weaker-than-expected growth

* Amazon (AMZN) shares rise after CEO reveals AI services revenue

* Constellation Brands (STZ) jumps after smaller drop in Q4 sales

By Stephen Culp and Avinash P

NEW YORK, April 9 (Reuters) - U.S. stocks advanced on Thursday, as signs of ongoing negotiations toward a peaceful resolution to the six-week Middle East conflict helped ease worries over the fragile U.S.-Iran truce. All three major U.S. stock indexes were higher, having rebounded from an earlier dip as Israel sought talks with Lebanon.

"The market is still very geopolitically driven, very headline driven at this point," said Paul Nolte, senior wealth adviser and market strategist at Murphy & Sylvest in Elmhurst, Illinois. "The narrative changes by the day, if not the hour."

"The news that Israel and Lebanon are talking and could agree to a ceasefire is great," Nolte added. "That's moved the markets."

In two sessions, the S&P 500 has moved back above its 100-day and 200-day moving averages, two key technical levels.

Crude prices seesawed throughout the session as markets waited for Iran to reopen the Strait of Hormuz, through which one-fifth of the world's oil is shipped.

The CBOE Market Volatility Index, called the "fear index," dipped to its lowest point since the onset of the war. The Commerce Department issued its GDP and PCE reports, which showed the economy grew at a slower-than-expected pace in the fourth quarter, while consumer prices remain elevated.

Minutes from the U.S. Federal Reserve's most recent monetary meeting showed policymakers are increasingly eyeing potential interest rate hikes to counter the inflationary impact of a prolonged Iran war.

The Dow Jones Industrial Average rose 311.32 points, or 0.65%, to 48,221.24, the S&P 500 gained 34.37 points, or 0.50%, to 6,816.78 and the Nasdaq Composite added 128.09 points, or 0.57%, to 22,763.08.

ENERGY SECTOR DROPS MOST

Of the 11 major sectors in the S&P 500, energy shares were down the most, while consumer discretionary registered the biggest percentage gain. Consumer discretionary stocks got a boost after Amazon.com's (AMZN) CEO Andy Jassy said its artificial intelligence services at its cloud-computing unit are generating annualized revenue of more than $15 billion. Amazon's (AMZN) shares were up 4.6%.

Software stocks were clear underperformers on the day, sliding 2.8%, while retail and chips outperformed, rising 3.4% and 1.4%, respectively. Constellation Brands (STZ) jumped 7.4% after the company posted a smaller-than-expected drop in fourth-quarter sales. Applied Digital (APLD) shares dropped 5.4% after the data center operator's third-quarter net loss widened from a year earlier.

Advancing issues outnumbered decliners by a 2.01-to-1 ratio on the NYSE. There were 211 new highs and 73 new lows on the NYSE.

On the Nasdaq, 2,649 stocks rose and 1,971 fell as advancing issues outnumbered decliners by a 1.34-to-1 ratio.

The S&P 500 posted 43 new 52-week highs and 19 new lows while the Nasdaq Composite recorded 142 new highs and 125 new lows.

(Reporting by Stephen Culp; Additional reporting by Purvi Agarwal, Avinash P and Sruthi Shankar in Bengaluru; Editing by Rod Nickel)