US STOCKS-Wall St extends gains; S&P hits 4-month high

* Federal Reserve decision on monetary policy eyed

* Netezza shares soar 12 pct on IBM deal

* IP shares drop on pricing fears

* Indexes up: Dow 1.1 pct, S&P 1.1 pct, Nasdaq 1.3 pct

* For up-to-the-minute market news see [STXNEWS/US] (Update to mid-morning trading)

By Angela Moon

NEW YORK, Sept 20 (Reuters) - The S&P 500 <.SPX> hit a four-month high and all three major indexes rose 1 percent on Monday as Wall Street sought to extend a three-week rally ahead of Tuesday's monetary policy meeting by the central bank.

The Federal Reserve is expected to renew a promise to keep its portfolio from shrinking but not seen taking new steps to ease monetary policy. For details, see [ID:nSGE68J04M]

U.S. stocks held gains despite a survey that showed U.S. homebuilder sentiment held steady in September, pointing to a still-weak housing market. [ID:nN20262375]

"It was a little less than expected, but that's not surprising. You'd hope to get some recovery in housing, but that's not going to happen soon. The whole bubble began with real estate, and it remains the big issue for the economy," said Cliff Draughn, president and chief investment officer at Excelsia Investment Advisors in Savannah, Georgia.

The Dow Jones home construction index <.DJUSHB> gained 3.4 percent. Lennar Corp , the No. 3 U.S. homebuilder, posted a better-than-expected third-quarter profit, sending its shares up 6.6 percent to $14.91. [ID:nSGE68J0F2]

The Dow Jones industrial average <.DJI> was up 113.30 points, or 1.07 percent, at 10,721.15. The Standard & Poor's 500 Index <.SPX> was up 12.29 points, or 1.09 percent, at 1,137.88. The Nasdaq Composite Index <.IXIC> was up 29.04 points, or 1.25 percent, at 2,344.65.

Netezza Corp advanced 13 percent to $27.68 after International Business Machines Corp agreed to buy the software and business analytics company for $27 per share, or about $1.7 billion. IBM was up 1 percent at $131.46.

On the downside, International Paper Co fell 8 percent to $21.58 after an influential trade magazine reported that it believed packaging producers have not been able to increase containerboard prices to customers. [ID:nN20216714]

U.S.-listed shares rose 1 percent to $38.40 after the British oil major said it permanently sealed the oil well in the Gulf of Mexico that led to the disastrous oil spill. [ID:nLDE68J02F]

China Unicom Ltd <0762.HK> will launch Apple Inc's latest iPhone in China next Saturday in a bid to claw back market share with the popular smartphone. Apple shares rose 2 percent at $280.60. (Additional reporting by Ryan Vlastelica in New York; editing by Jeffrey Benkoe)