US STOCKS-Wall Street takes a breather after two-day rally

* U.S (Other OTC: UBGXF - news) . durable goods orders surge, business spending weak

* Fed's Powell eyes rate hike 'fairly soon'

* Abercrombie slumps after sales fall for 13th straight quarter

* Indexes: Dow -0.13 pct, S&P +0.01 pct, Nasdaq +0.11 pct (Updates to afternoon)

By Noel Randewich

May 26 (Reuters) - Wall Street treaded water on Thursday as investors looked for fresh reasons to buy stocks following two straight days of gains.

Investors this week have grown more comfortable with expectations that the Federal Reserve could raise interest rates as soon as June, with many taking the view that such a hike would reflect improvement in the country's sluggish economy.

After gaining 2 percent over the previous two sessions, the S&P 500 traded near flat, with a 0.96 percent dip in the materials index partly offset by a 0.91 percent rise in utilities.

"People are taking their foot off the gas after making a bunch of money, and now they're waiting for the next data point," said Phil Blancato, chief executive of Ladenburg Thalmann Asset Management in New York.

In line with other policymakers who have spoken in recent days, Fed Governor Jerome Powell said a rate hike may come "fairly soon" if data confirms the U.S. economy is continuing to grow and labor markets are still tightening

Data showed that while orders for U.S. durable goods surged in April, business spending plans continued to show signs of weakness, suggesting the manufacturing rout was far from over.

The Dow Jones industrial average fell 0.13 percent at 17,828.33 points and the S&P 500 edged up 0.01 percent to 2,090.77.

The Nasdaq Composite added 0.11 percent to 4,900.41.

Apple (NasdaqGS: AAPL - news) shares rose 0.61 percent, providing the largest boost to the S&P 500, while Microsoft (Euronext: MSF.NX - news) dipped 0.81 percent, weighing most on the index.

Discount retailers Dollar General rose over 5 percent and Dollar Tree (NasdaqGS: DLTR - news) rallied 13 percent, both hitting record highs after reporting better-than-expected quarterly profits.

Abercrombie & Fitch (NYSE: ANF - news) shares slumped 17 percent to $21.09 after the retailer posted its 13th straight quarter of sales declines.

Costco Wholesale rose 3.7 percent a day after posting quarterly earnings.

Advancing issues outnumbered falling ones on the NYSE by 1,545 to 1,396. On the Nasdaq (NasdaqGS: NDAQ - news) , 1,415 issues fell and 1,309 advanced.

The S&P 500 index showed 21 new 52-week highs and one new low, while the Nasdaq recorded 46 new highs and 18 new lows. (Additional reporting by Ankur Banerjee in Bengaluru; Editing by Meredith Mazzilli)