* U.S. consumer confidence hits highest since October 2007
* Best Buy tumbles after results, DSW rises
* Digital Ally gains further, up over 250 pct in August
* Dow up 0.3 pct; S&P 500 up 0.2 pct; Nasdaq up 0.3 pct (Updates to early afternoon, changes byline)
By Chuck Mikolajczak
NEW YORK, Aug 26 (Reuters) - U.S. stocks advanced modestly on Tuesday as both the Dow and S&P 500 backed off after hitting fresh intraday records on the heels of strong consumer data, which suggested that the market's long-running rally could keep going.
Energy shares, which closely track the pace of growth, led the day's gain. The S&P energy index rose 0.8 percent.
The S&P 500 popped back above 2,000, which it had breached for the first time on Monday. With Tuesday's move, both the Dow and the S&P 500 have risen in 10 of the past 13 sessions, while the Nasdaq is up for 11 of the past 13 sessions.
However, much of the market's recent gains have come on low volume, suggesting that many traders may be reluctant to jump in at current levels.
"From an activity standpoint, it's relatively quiet. We broke through 2,000 so psychologically now it's going to tease with that a little bit," said Ken Polcari, director of the NYSE floor division at O'Neil Securities in New York.
U.S. consumer confidence rose more than expected in August, climbing to its highest since October 2007, according to the Conference Board, an industry group. The Commerce Department reported that U.S. durable goods orders jumped 22.6 percent in July, the biggest gain on record, though the number was skewed by strong international demand for aircraft.
"For the most part the data is starting to come in more consistently, at least to the positive side, we are not getting as many hiccups. Although it's slow, it is not necessarily as fast as people would like but maybe that is a good thing because there will be more control over it." Polcari said.
The market's trend higher is still seen as intact and the S&P 500's price-to-earnings ratio is within historical norms, leading many analysts to believe stocks are not overvalued. Nonetheless, pronounced further gains may be a challenge amid potential headwinds such as a reduction in Federal Reserve stimulus and a simmering conflict between Ukraine and Russia.
The Dow Jones industrial average rose 52.63 points or 0.31 percent, to 17,129.50. The S&P 500 gained 4.26 points or 0.21 percent, to 2,002.18. The Nasdaq Composite added 14.57 points or 0.32 percent, to 4,571.92.
Best Buy Co Inc slid 6.4 percent to $29.95 after the electronics retailer reported second-quarter revenue that missed expectations and forecast a drop in same-store sales in the second half of the year. But DSW Inc jumped 8.5 percent to $30.79 after the shoe and accessory retailer's adjusted quarterly earnings topped forecasts.
Digital Ally Inc extended its meteoric rise, climbing another 8.8 percent to $13.61 on heavy volume. The recent fatal police shooting of an unarmed black teenager in Missouri has fueled interest in the company's wearable camera, and the stock's price has nearly quadrupled this month alone.
Amazon.com Inc agreed late Monday to buy live-streaming gaming network Twitch Interactive for about $970 million in cash. Amazon's stock rose 2.7 percent to $342.98 and gave the biggest boost to the Nasdaq 100 index. (Reporting by Chuck Mikolajczak; Editing by Jan Paschal)