* U.S. manufacturing grows more than expected
* Pending home sales surge in September
* Banks slip after Fed official's comments
* Dow up 0.5 pct, S&P up 0.2 pct, Nasdaq off 0.2 pct
* For up-to-the-minute market news, click [STXNEWS/US] (Updates to late afternoon)
By Chuck Mikolajczak
NEW YORK, Nov 2 (Reuters) - U.S. stocks pushed mostly back into positive territory, but were off session highs late on Monday afternoon, as a sell-off in banking shares reversed the initial gains built on solid economic data.
Key data on manufacturing and housing pointed to steady improvement in the economy, but critical comments on the financial sector from a Federal Reserve official caused investors to sell financial shares.
In testimony on Monday, Jon Greenlee, the associate director of the Fed's Division of Banking Supervision and Regulation, said U.S. banks are at risk of sizable new loan losses, particularly on commercial property, and some banks may not have enough capital to fully cushion against setbacks. For details, see [ID:nN02443852]
The KBW Banks index <.BKX> rose 0.5 percent, well off its
earlier high that had driven it up more than 3 percent.
Citigroup Inc
"This quote from the Fed official as well -- about the commercial real estate -- that's not helping," said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.
"You've got the market turning over and going down and a good part of it is these comments from the Fed."
The three major indexes had previously risen about 1 percent earlier in the session as stronger-than-expected data on manufacturing and pending home sales spurred broad-based gains and soothed worries over the strength of the recovery. [ID:nN02437173]
The Dow Jones industrial average <.DJI> gained 44.74 points, or 0.46 percent, to 9,757.47. The Standard & Poor's 500 Index <.SPX> gained 2.46 points, or 0.24 percent, to 1,038.65. The Nasdaq Composite Index <.IXIC> dropped 3.46 points, or 0.17 percent, to 2,041.65.
Ford Motor Co