Poll sees S&P 500 index rising 13% by the year-end

US stock indexes should end the year with double-digit gains over current levels though the European debt crisis and weak US job and housing markets may weigh on investor sentiment, a Reuters poll showed.

The Standard & Poor's 500 index is forecast to rise to 1,230 at the end of 2010, according to the median forecast of 52 money managers and strategists at top Wall Street dealers, brokerages, and fund managers polled between June 16 and 24.

That consensus is almost identical to the 1,225 median forecast for the end of 2010 in the March poll.

The bulk of the forecasts in the latest poll were collected before the Federal Reserve's policy meeting this week, where it acknowledged a faltering pace of recovery.

The 1,230 forecast would represent a 10% increase from where the index ended 2009 and an almost 13% rise from yesterday's close at around 1,092.

For the Dow Jones Industrial Average, the median forecast for end-2010 was 11,500. That would mean an increase of over 10% for this full year.

In the March poll, the end-year forecast spread between the highest and lowest forecast was 450 points. Though the median hasn't changed substantially, the spread has widened to 525 points after a bumpy and volatile ride on world stock markets.

Out of the 40 common contributors in this poll and the March one, 17 of 40 downgraded their S&P 500 year-end targets, 13 upgraded them, and 10 left them unchanged.

Sectors tied to economic growth such as technology and industrials should do well due to the continuing improvement in profits and the Fed's loose interest rate policy, which is likely to last for an extended period.

A majority of US corporations have beaten profit expectations in recent quarters, and that trend is likely to continue, strategists said.

Second-quarter S&P 500 earnings are expected to grow by 27% from a year ago, according to Thomson Reuters data.

"Earnings will continue to come in better than expected. Too many people have underestimated the strength of the recovery," said Jeff Rubin, market strategist at Birinyi Associates in Westport, Connecticut.

Analysts also see stocks benefiting from ultra-low interest rates. With tame inflation and concerns about Europe, many economists expect the Fed to keep rates near zero until sometime next year.

That's a change from views in March, when they expected the Fed to begin raising rates before the end of the year.

This year would mark the second straight year of gains for the stock market since the crash of 2008.

The S&P rose 23.5% in 2009 after closing down 38% in 2008, the worst drop since the 1930s.

Among the head winds facing stocks are weak labour and housing markets, which have lagged behind other sectors of the economy, while debt problems in Europe have raised concerns about a slowdown in the global recovery.

US home sales dropped a record 32.7% in May to the lowest level in at least four decades, data on Thursday showed, although skewed by the end of a popular tax credit.

China's move over the weekend to allow a flexible yuan may help the outlook for US-based multinational companies.