* Federal Reserve decision on monetary policy eyed
* S&P 500 rises above key levels
* Homebuilder Lennar up after beating profit views
* Group rules US recession officially ended in June 2009
* Indexes up: Dow 1.3 pct, S&P 1.3 pct, Nasdaq 1.4 pct (Update to afternoon trading, changes byline)
By Ryan Vlastelica
NEW YORK, Sept 20 (Reuters) - The S&P 500 hit a four-month high and pushed through a pair of resistance levels on Monday, driving more traders into the market and extending the month's gains.
The S&P 500 has struggled to make a sustained move above 1,130 since June, most recently making an intraday break through it on Friday. Some traders expect a breakout if the index holds above the level on solid volume.
In afternoon trading, the S&P broke above a short-term resistance level of 1,140, the 61.8 Fibonacci retracement of its 2010 high-to-low slide.
The move comes a day ahead of a Federal Reserve meeting where the central bank is expected to renew a promise to keep its portfolio from shrinking but is not seen taking new steps to ease monetary policy.
"The market is being moved by technicals, not news flow, but right now it's unclear whether breaking out of the range will lead to continued strength," said Gary Flam, portfolio manager at the Los Angeles-based Bel Air Investment Advisors.
A few weeks before earnings season begins in earnest, a pair of companies rallied on higher-than-expected profits. Homebuilder Lennar Corp surged 8.9 percent to $15.23 while Discover Financial Services added 2.2 percent to $15.90.
"This kind of news creates a lot of confidence that the third quarter will be in line or better than expected," Flam said. "We went from pricing in a double dip a month ago to expecting an economy that isn't terrible."
The Dow Jones industrial average was up 133.96 points, or 1.26 percent, at 10,741.81. The Standard & Poor's 500 Index was up 14.89 points, or 1.32 percent, at 1,140.48. The Nasdaq Composite Index was up 32.54 points, or 1.41 percent, at 2,348.15.
Volume at 4.74 billion shares after about five hours of trading was in line with the weak to moderate volume of recent days. Traders will want to see a pick-up in trading by the close to confirm the market has made a convincing breakout.
In the latest big merger deal in the tech sector, IBM agreed to buy Netezza Corp for $1.7 billion. International Business Machines Corp, a Dow component, rose 1.1 percent to $131.63 while Netezza surged 15.5 percent to $28.41.
Gold hit record highs for a fourth straight day as speculation the Fed may announce further moves to stimulate the economy piqued interest in the precious metal. The Arca Gold Bugs index, which tracks the performance of 16 U.S.-traded gold producers, rose 1.6 percent, with Canada's New Gold Inc the biggest percentage gainer, up 5.4 percent to $6.24 on the New York Stock Exchange.
On the downside, International Paper Co fell 6.6 percent to $21.92 after an influential trade magazine reported that it believed packaging producers have not been able to increase container board prices to customers.
The National Bureau of Economic Research said that the recession officially ended in June 2009, though that didn't mean the economy had "returned to operating at normal capacity." It cautioned that economic activity sometimes remains below normal well into expansion.
Also on Monday, a survey showed U.S. homebuilder sentiment held steady in September, pointing to a still-weak housing market. (Reporting by Ryan Vlastelica; Editing by Kenneth Barry)