* U.S. service sector contracts at slower pace in June
* Oil falls 4 pct to $64 a barrel, energy sector hit
* Dow up 0.5 pct, S&P up 0.3 pct, Nasdaq off 0.5 pct (Updates to close)
By Edward Krudy
NEW YORK, July 6 (Reuters) - The Dow industrials rose and the S&P 500 rebounded in late trading on Monday as investors' concerns about the strength of an economic recovery triggered a move into defensive stocks.
But the technology-heavy Nasdaq slipped as investors rotated out of the tech sector, which is viewed as more reliant on the economic cycle.
A series of reports showing the economy is in less dire straits than it was at the start of the year drove stocks sharply higher in the spring, but lately investors have been looking for consistent evidence of a sustained recovery.
Stocks were weak through most of the session until the last half hour when the push into sectors likely to outperform in a down economy helped healthcare stocks like Merck & Co, up 3.3 percent at $27.89, and consumer staples like Kraft Foods Inc, up 1.9 percent at $26.44.
While a report on the services sector was better than expected in June, the Institute for Supply Management's non-manufacturing data failed to relieve broader concerns raised by last week's unexpectedly weak June non-farm payrolls report. As a result, some investors turned to defensive stocks.
"Looking beyond this initial recovery phase, the economic expansion is going to be below average and that is going to be more favorable toward the defensive sectors of the market," said Henry Smith, chief investment officer of Haverford Trust Co in Philadelphia.
The Dow Jones industrial average gained 44.13 points, or 0.53 percent, to 8,324.87. The Standard & Poor's 500 Index added 2.30 points, or 0.26 percent, to 898.72. But the Nasdaq Composite Index dropped 9.12 points, or 0.51 percent, to 1,787.40.
The S&P 500 has rallied as much as 40 percent from a 12-year closing low reached on March 9. But the benchmark index is now up only 32.8 percent since then as stocks have given up some of their gains on concerns about the economy.
American Express Co topped the Dow's list of biggest percentage gainers in Monday's session, climbing 5.6 percent to $23.52 after Stifel Nicolaus raised its rating on the company's stock to "hold," saying it was the least exposed to new rules on the credit card sector.
Investors were also looking ahead to the start of second- quarter earnings season on Wednesday for an indication of how corporations are weathering the economic downturn. Data compiled by Thomson Reuters shows about a 36 percent decline in S&P 500 earnings from a year ago. That would be roughly the same result as the first quarter.
"The market is now wanting to see what the earnings season has in store," said Robert Auer, senior portfolio manager of SBAuer Funds in Indianapolis. "And it's not just what the numbers are. It's going to be what the companies say that's going to be more important."
Among the heaviest weights on the Nasdaq was iPhone and iPod maker Apple Inc, down 1 percent at $138.61.
While ISM data released earlier on Monday showed the U.S. service sector contracted in June at a slower pace than expected, the market's sentiment was still colored by last week's much worse-than-expected jobs report.
Last Thursday, the U.S. Labor Department reported a decline of 467,000 in nonfarm payrolls, nearly 100,000 more than expected. The U.S. stock market was shut on Friday for the long Independence Day holiday weekend.
August crude futures touched a five-week low, tumbling
$2.68, or 4 percent, to settle at $64.05 per barrel on Monday.
The slide in oil prices drove shares of Marathon Oil Corp
Trading volume was moderate on the New York Stock Exchange, with only about 1.14 billion shares changing hands, well below last year's estimated daily average of 1.49 billion, while on the Nasdaq, about 2.00 billion shares traded, below last year's daily average of 2.28 billion.
Declining stocks outnumbered advancing ones on the NYSE by a ratio of 3 to 2, while on the Nasdaq, about eight stocks fell for every five that rose. (Editing by Jan Paschal)