*

US economic growth regains steam in Q2; inflation slows

*

Ford slumps as higher costs, EV unit dent profit growth

*

IBM ( IBM ) gets boost from software, AI demand, as consulting

slips

*

Gains for small-cap indexes Russell 2000 and S&P Small Cap

600

*

Indexes: Dow up 0.2%, S&P down 0.51%, Nasdaq 0.93% lower

(Updates with closing prices)

By David French

July 25 (Reuters) -

The S&P 500 and Nasdaq Composite ended a fickle session

weaker on Thursday, failing to regain ground lost in the

previous day's tech-triggered sell-off as investors grappled

with the likely direction of megacaps.

The Dow Jones Industrial Average hung onto early gains to

close higher on stronger-than-expected U.S. gross domestic

product data.

Small-cap stocks also rose as investors sought out value

away from the megacaps, with the Russell 2000 rising 1.3%

to partially recoup some of Wednesday's losses.

Megacap stocks recovered from a shaky start to trade higher

at mid-afternoon but many slipped later, with Meta Platforms

Microsoft and Nvidia ( NVDA ) ending between

1.7% and 2.4% down.

Alphabet's shares fell for a second straight day,

dipping 3.1% to its lowest close since May 6, but Tesla

rose. Lackluster earnings from the Google parent and the

electric vehicle maker had pummeled the so-called Magnificent

Seven group of tech stocks on Wednesday, prompting the Nasdaq

and S&P 500 to log their worst day since 2022.

The Cboe Volatility Index, known as Wall Street's

fear gauge, extended its recent gains to close at 18.46, a fresh

14-week high.

"I think the market is kind of lurching," said Yung-Yu Ma,

chief investment officer at BMO Wealth Management. "The concern

had been building and yesterday was a bit of a crescendo of that

concern, but some of that has been alleviated today."

While investors are still trying to grapple with Wednesday's

disappointing earnings reports, and political and economic

uncertainty, Ma said ultimately recent data shows a resilient

U.S. economy.

Thursday's GDP report showed the U.S. economy expanded 2.8%

in the second quarter versus an estimate of 2%. Inflation

subsided, leaving expectations of a September Federal Reserve

interest rate cut intact.

All eyes are now on Friday's personal consumption

expenditures price data to confirm bets of an early start to Fed

rate cuts.

While heavyweight stocks have powered the market to all-time

highs this year, Wednesday's sell-off reinforced fears that

these stocks might be over-stretched and are in for more

turbulence.

This concern has driven value investors, speeding up their

rotation into smaller-cap stocks and other sectors outside

megacap technology.

The S&P Small Cap 600 rose 1.4% on Thursday.

The S&P 500 lost 27.91 points, or 0.51%, at 5,399.22

points, while the Nasdaq Composite fell 160.69 points,

or 0.93%, to 17,181.72. The Dow Jones Industrial Average

rose 81.20 points, or 0.20%, to 39,935.07.

Among earnings-driven moves, IBM ( IBM ) shares jumped 4.3%,

also boosting the blue-chip Dow, after the tech company beat

estimates for second-quarter revenue and raised the annual

growth forecast for its software business.

American Airlines ( AAL ) rose 4.2% after cutting its annual

profit forecast. Southwest Airlines ( LUV ) climbed 5.5% after

saying it would implement changes including ending open seating

and offering seats with extra legroom.

Advances by airlines and logistics firms, with Old Dominion

up 5.7% and J B Hunt rising 4.3%, helped the

Dow Jones Transportation Average gain 1.3%.

Ford slumped 18.4% after the automaker's

second-quarter adjusted profit missed estimates by a wide

margin. Edwards Lifesciences ( EW ) tumbled 31.3% after it

missed second-quarter revenue estimates.

Volume on U.S. exchanges was 13.23 billion shares, compared

with the 11.60 billion average for the full session over the

last 20 trading days.