US STOCKS-Summers' withdrawal signals dovish Fed, Wall St rises

* Summers in surprise withdrawal from Fed chair consideration

* Fed to meet this week for decision on stimulus' future

* Housing-related stocks rally on mortgage rates bets

* Indexes: Dow up 0.8 pct, S&P up 0.7 pct, Nasdaq flat

By Rodrigo Campos

NEW YORK, Sept 16 (Reuters) - U.S. stocks rallied on Monday, with the S&P 500 at a six-week high, after former Treasury Secretary Lawrence Summers withdrew as a candidate for Federal Reserve chairman, removing market uncertainty about a long confirmation process that already had plenty of opposition.

The move means a path for the next Fed chief is likely to be easier, and it also has added to expectations that the Fed will continue its current accommodative path. Summers was seen as more prone to wind down stimulus than the new front-runner, Fed Vice Chairwoman Janet Yellen.

Summers' surprise decision on Sunday came just days before the U.S. central bank will meet to decide when, and by how much, to scale back its bond purchases, or quantitative easing.

Investors flocked to housing-related stocks on bets of downward pressure on mortgage rates. The PHLX housing index jumped 2 percent. Among individual stocks, D.R. Horton jumped 5 percent to $20.09.

Summers "was increasingly bringing uncertainty to a very important post for markets," said Doug Cote, chief market strategist at ING U.S. Investment Management in New York.

"With him stepping aside, markets are now taking off the 'Larry Summers' discount, so this (gain) is sustainable and where the market should be."

The Dow Jones industrial average rose 127.52 points or 0.83 percent, to 15,503.58, the S&P 500 gained 10.91 points or 0.65 percent, to 1,698.9 and the Nasdaq Composite added 0.585 points or 0.02 percent, to 3,722.769.

The S&P traded above 1,700 for the first time since early August and the Dow was on track to post its largest daily gain in at least two months.

The Nasdaq Composite was weighed by a drop in Apple shares. Apple (NasdaqGS: AAPL - news) fell 2.1 percent to $454.95 and is down more than 10 percent in the last five sessions, after investors were disappointed by the new products and prices introduced last week.

The day's gains come after the Dow Jones (DJI: ^DJI - news) industrial average on Friday registered its best weekly gain since January, though trading was subdued before the Fed's meeting, which has been expected to result in the start of tapering.

Yellen, the leading candidate to succeed Ben Bernanke in January, is likely to continue the Fed's cautious approach to winding down the current stimulus.

Summers was regarded as more eager to scale back the Fed's $85 billion a month bond buying. Yellen is perceived as favoring a more gradual easing of stimulus and emphasizing the need to lower the unemployment rate.

Yellen's "probability has increased and she's one of moderation and continued support to the economy," said ING's Cote. "It is really good news for the market."

The United States, France and Britain stepped up pressure on Syrian President Bashar al-Assad to stick to a deal under which Syria must give up its chemical weapons, and warned he would suffer consequences if Damascus did not comply. Russia immediately cautioned against imposing tough penalties on the Syrian leader.

Both Brent and U.S. crude prices fell more than 1 percent as supply concerns stemming from a possible U.S.-led attack on Syria eased.

Packaging Corp of America said it would acquire smaller rival Boise Inc (NYSE: BZ - news) for about $1.28 billion to boost its container board capacity. Packaging Corp of America shares jumped 6.6 percent to $58.15 and Boise rallied 26.5 percent to $12.60.

Industrial toolmaker Kennametal (NYSE: KMT - news) said it would buy Allegheny Technologies (NYSE: ATI - news) ' tungsten materials business for $605 million to expand in aerospace and energy markets. Kennametal shares added 1.2 percent to $46.56 after hitting a record intraday high of $47.93. Allegheny jumped 9.9 percent to $31.47.

Industrial production rose in August as a bounce-back in motor vehicle assembly lifted manufacturing output, a hopeful sign for the economy after growth got off to a slow start in the third quarter.

A separate report for September showed the pace of growth in New York state's manufacturing sector unexpectedly slowed this month, but firms' outlook brightened.