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Reuters - Stocks advanced moderately on Wednesday on an unexpectedly strong rise in orders for durable manufactured goods and resilience in the financial sector.

By Richard Leong

Stocks advanced moderately on Wednesday on an unexpectedly strong rise in orders for durable manufactured goods and resilience in the financial sector.

Investors also welcomed remarks from Atlanta Federal Reserve Bank President Dennis Lockhart, who said inflation, albeit "high and worrisome," should moderate over the rest of the year and into next year, analysts and traders said.

The Fed official's market-friendly comment on inflation and the suggestion of strength in the economic data outweighed higher oil prices from the threat of production interruptions in the Gulf of Mexico.

"Durable goods came in better-than-expected and people are looking past the impact of (Tropical Storm) Gustav" on oil, said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles.

The Dow Jones industrial average (.DJI) was up 43.89 points, or 0.38 percent, at 11,456.76. The Standard & Poor's 500 Index (.SPX) was up 4.14 points, or 0.33 percent, at 1,275.65. The Nasdaq Composite Index (.IXIC) was up 8.24 points, or 0.35 percent, at 2,370.21.

Demand for expensive manufactured items meant to last three years or more grew last month. That was an improvement over economists' expectations that demand would be flat. In addition , the government revised June's durable goods orders higher.

Oil prices rose for a third straight day on jitters about Gustav. Energy companies in the Gulf of Mexico began evacuating staff from offshore rigs on Wednesday as the tropical storm Gustav barreled toward the oil and natural gas-rich region.

U.S. oil futures rose $2.44 to $118.71 a barrel, rising more than $4 since Friday's close.

The resurgence in oil boosted energy stocks, with Exxon Mobil (XOM.N) gaining 0.6 percent to $80.45.

Weakness in drug companies dragged on equities.

The diabetes drug, Byetta, sold by Amylin Pharmaceuticals Inc. (AMLN.O) and Eli Lilly & Co. (LLY.N) was linked to four more deaths in patients with pancreatitis, adding to two deaths announced by federal regulators last week. .

Amylin shares stumbled nearly 20 percent to $21.74, while Lilly shed 0.4 percent to $46.81.

Bristol-Myers Squibb Co. (BMY.N) and Pfizer Inc. (PFE.N) fell after they said late Tuesday their apixaban blood clot preventer failed its primary goal in a late-stage trial and that they no longer plan to seek marketing approval for it next year. Bristol-Myers was off 3 percent to $21.34 and Pfizer fell .5 percent to $15.98.

Worries about the financial sector exacerbated after a Morgan Stanley analyst downgraded the third-quarter outlook on Goldman Sachs (GS.N) and said he expects the biggest U.S. securities firm to post $1.5 billion in write-downs.

Goldman shares were down 1.2 percent at $154.19.

"The credit issue is still hanging over the market," said Nick Kalivas, equity market analyst at MF Global Research in Chicago.

Fannie Mae (FNM.N) and Freddie Mac (FRE.N) extended their recent gains on hopes that a possible government rescue of the two mortgage finance companies would not wipe out shareholders. Fannie shares were up 6 percent to $11.03 and Freddie shares gained 11 percent to $4.45.

(Editing by Kenneth Barry)