* Durable goods post largest gain in two years
* New home sales rise at fastest pace since Sept 2008 (Updates to midday)
By Rodrigo Campos
NEW YORK, Aug 26 (Reuters) - U.S. stocks seesawed on Wednesday despite strong data on new home sales and durable goods orders as investors paused after a recent sharp run-up.
Sales of new homes rose in July to their fastest pace in 10 months, while orders for long-lasting manufactured goods surged, hinting a modest economic recovery was taking shape.
For the third consecutive day, equities briefly bounced after favorable news, but the gains fizzled.
"New home sales were better, but given the recent data we've had I don't think that was a surprise," said Michael James, senior trader at Wedbush Morgan in Los Angeles.
James said investor psychology is focusing "on the fact that we've had up moves and then sold off both Monday and Tuesday. After today's initial surge, buyers are becoming a little tired."
The Dow Jones industrial average shed 2.72 points, or 0.03 percent, to 9,536.57. The Standard & Poor's 500 Index fell 1.35 points, or 0.13 percent, to 1,026.65. The Nasdaq Composite Index dropped 6.13 points, or 0.30 percent, to 2,018.10.
The S&P 500 is on track for its sixth straight monthly rise, and has gained about 52 percent from 12-year lows set in early March.
Shares of machinery maker Cummins Inc fell 3.6 percent to $46.29, while peer Deere & Co lost 2.8 percent to $45.01, as the S&P industrials index shed 1 percent.
Homebuilder stocks were among the top gainers, with the Dow Jones home construction index up 2.3 percent. D.R. Horton Inc jumped 4.8 percent to $13.67, and Pulte Homes Inc gained 2.2 percent to $13.35.
On Nasdaq, Human Genome Sciences Inc rose 14.6 percent to $22.01 on continued speculation that GlaxoSmithKline Plc was set to pay a healthy premium for the company. A biotech stocks index rose 4.6 percent.
Buoyed by a surge in aircraft orders, durable goods orders jumped 5 percent, the largest advance since July 2007, after falling by a revised 1.3 percent in June, the government said.
Earlier, the Mortgage Bankers Association said U.S. mortgage applications rose for a second straight week, with demand for home refinancing loans rising to its highest level since early June.
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