* New home sales unchanged in August
* Durable goods orders fall but business spending rebounds
* Dow up 1.8 pct, S&P up 2 pct, Nasdaq up 2 pct (Updates to early afternoon)
By Edward Krudy
NEW YORK, Sept 24 (Reuters) - U.S. stocks advanced 2 percent on Friday, with an eye to racking up four weeks of gains, as traders put the September rally firmly back on track after three down days for equities.
The economic data was mixed, but traders latched on to a rise in August business spending as the latest sign the recovery is on firmer ground. That appeared to trump data that showed new U.S. single-family home sales were flat in August.
Buying was broad across multiple sectors. But early indications were that volume was on course for another moderate day despite the indexes' 2 percent gain. Around 4.36 billion shares traded on the NYSE, Amex and Nasdaq by early afternoon.
Kenneth Polcari, an NYSE floor trader and a managing director at Icap Corporates, said the market was overextended after the S&P 500 has climbed slightly over 9 percent so far this month.
"It's a very nervous market so therefore you have these outsized reactions," he said. "Any positive news is what they're grabbing on to and they're completely eliminating the negative."
The Dow Jones industrial average gained 190.61 points, or 1.79 percent, to 10,853.03. The Standard & Poor's 500 Index rose 22.84 points, or 2.03 percent, to 1,147.67. The Nasdaq Composite Index added 47.11 points, or 2.02 percent, to 2,374.19.
Traders noted that a short bias going into the open this morning had been chased out when the market held its gains after the uninspiring housing data. That pushed prices up as trades bought to cover their positions and pulled in more buyers.
"It's a classic bull and bear struggle," said Jim Maguire, Jr, a floor trader on the New York Stock Exchange at E.H. Smith Jacobs.
For September, the S&P 500 is up 9.4 percent after rallying since the start of the month on data suggesting the economy was not on the verge of sliding back into recession as some had feared.
The broad-based index crossed a major resistance level at 1,130 on Monday, but its close below that mark in the last session and light trading volumes have caused some investors to question the move's sustainability.
Other technical indicators are pointing to an overbought condition in the S&P 500, although the declines of the last three days have eased that somewhat.
Analysts say that long-term buyers are not fully participating in the rally, making the market more susceptible to a reversal in direction.
"The volume isn't indicative of people piling in, there's no mad rush to buy," said Joseph Greco, a managing director at Meridian Equity Partners in New York. "We're coming into the end of the quarter and no one wants to get caught short."
Even so, the S&P 500 also retook its 61.8 percent retracement of its April-to-July fall at 1,140, which can be an important level for traders.
Shares of builder KB Home rose 3.3 percent to $12.10 after the fifth-largest U.S. home builder posted a smaller-than-expected third-quarter loss. The Dow Jones home construction index rose 2.9 percent.
Nike Corp rose 3.4 percent to $80.30 after the company reported stronger-than-expected orders and profit late on Thursday.
On the Nasdaq, Apple Inc shares rose 1.1 percent to $292.21 and options trading was also brisk. Apple trades as of Thursday's close were double the stock's daily trading volume, according to Jocelynn Drake at Schaeffer's Investment Research.
Boosting investor sentiment was the share offering of Brazilian state oil company, Petrobras. The sale of nearly $70 billion in shares surpassed expectations, erasing concerns that stocks were less attractive assets.
(Reporting by Edward Krudy; Addtional reporting by Ryan Vlastelica; Editing by Jan Paschal)