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U.S. techs rise on Microsoft results; S&P 500 flat

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By Elizabeth Lazarowitz

NEW YORK, April 23 (Reuters) - Stocks rose for a third straight day on Friday as strong results from Microsoft Corp. gave tech shares a boost, but investors' jitters about higher interest rates capped gains in blue chips and the broad Standard & Poor's 500 index .

Higher revenue at Microsoft added to evidence that the economy and corporate earnings are on the mend, prompting a buying spree of stocks in the technology sector.

"The (earnings) numbers have been really good," said Mark Donahoe, managing director of institutional sales trading at U.S. Bancorp Piper Jaffray. "Just in terms of technology, Microsoft set the tone."

For the week, the Dow rose 0.2 percent, the S&P 500 rose 0.5 percent and Nasdaq rose 2.7 percent. It was the first week since April 2 when all the major indexes rose.

Quarterly results are now in from about half of the companies in the S&P 500, and nearly 80 percent of those have beaten Wall Street's expectations.

But some fear that bumper profits and the economy's steady recovery will force the Federal Reserve to hike interest rates as it tries to contain inflation. Higher borrowing costs, in turn, may cap companies' profits in the near term.

The Dow Jones industrial average gained 11.64 points, or 0.11 percent, to 10,472.84. The S&P 500 Index edged up 0.67 point, or 0.06 percent, to 1,140.60. The technology-laced Nasdaq Composite Index gained 16.86 points, or 0.83 percent, to 2,049.77.

Trading was active, with about 1.4 billion shares traded on the New York Stock Exchange and 1.9 billion shares on Nasdaq. About twice as many shares fell as rose on the NYSE, and about four fell for every three that rose on Nasdaq.

A report on Friday showing a surge in new orders for durable goods offered investors more evidence that the economic recovery is on track and higher interest rates may be on the horizon.

"That is the main hurdle facing this market," said Milton Ezrati, senior economic strategist at Lord Abbett & Co. "The market's going to have to reconcile itself to the higher rates and realize that this economy, and therefore the earnings, are not going to stop because of it before it can break (higher)."

Microsoft was the most heavily traded stock on Nasdaq, up $1.59, or 6 percent, to $27.54. On Thursday, the world's largest software maker said quarterly profit fell after legal charges, but revenue rose a better-than-expected 17 percent on stronger personal computer sales.

Caterpillar was the biggest drag on the Dow, falling $2.14, or 2.5 percent, to $81.96. The drop comes after sharp gains on Thursday when the construction and mining equipment maker tripled earnings and raised its profit outlook.

Insurance brokers were badly hit on news that New York Attorney General Eliot Spitzer, whose investigations of the mutual fund and stock research businesses led to industrywide reforms, is now investigating fees earned by brokers.

Marsh & McLennan Cos. , the world's largest broker, fell 98 cents, or almost 2 percent, to $45.01. Aon Corp. , the world's No. 2 insurance broker, lost 94 cents, or 3 percent, to $27.82.

In other earnings news, Corning Inc.'s shares surged 18 percent a day after the world's largest maker of fiber-optic cable reported stronger-than-expected financial results and offered a rosy outlook for the current quarter.

Fortune Brands Inc. said quarterly profit rose 40 percent on strong gains in all its business lines. Shares of Fortune Brands were up $2.05, or nearly 3 percent, to $78.70. The stock had risen as high as $80.50 earlier in the day.

International Paper Co. , the world's largest forest products company, ticked up 0.4 percent after it said its first-quarter earnings rose 66 percent on higher sales volumes in some paper and packaging grades.

Xerox Corp. posted better-than-expected quarterly earnings on strong sales of copiers and printers, but pressure on profit margins sent the document management company's shares down more than 8.5 percent to $13.18.