* U.S. economy shrank in Q1; durable orders fall
* Monsanto rallies after results; General Mills lower
* Medical Action almost doubles, Owens & Minor to buy
* Dow up 0.2 pct; S&P 500 up 0.3 pct; Nasdaq up 0.4 pct (Updates to afternoon)
By Ryan Vlastelica
NEW YORK, June 25 (Reuters) - U.S. stocks edged higher on Wednesday as investors continued to find value in equities over other asset classes despite the latest economic data coming in below expectations.
The U.S. economy contracted in the first quarter at a 2.9 percent annual rate, a much steeper pace than previously estimated, though activity was affected by a harsh winter, and there are indications that growth has since rebounded. In another negative data point, U.S. orders for durable goods unexpectedly fell 1 percent in May.
Futures initially fell on the news, but Wall Street showed signs of strength in early trading. The Dow and the S&P 500 remain within striking distance of record levels.
"As long as investors believe the economy will keep growing, and everyone expects growth in the second quarter, the lesser evil will be to buy equities at a modestly higher valuation, since bonds and cash don't represent better values," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.
The Dow Jones industrial average rose 32.24 points or 0.19 percent, to 16,850.37. The S&P 500 gained 5.74 points or 0.29 percent, to 1,955.72. The Nasdaq Composite added 16.61 points or 0.38 percent, to 4,366.97.
The S&P 500 hit an intraday record high on Tuesday before concerns over Iraq turned indexes sharply lower in afternoon trading. Those tensions remained in focus after militants in Iraq attacked one of the country's largest air bases. The first U.S. teams arrived to help Iraqi security forces counter the violence.
Investors are concerned about the impact that prolonged turmoil in Iraq could have on oil prices, which have already climbed 3.8 percent this month.
Monsanto Co shares gained 5 percent to $126.60 after the world's largest seed company raised the low end of its full-year outlook, while General Mills Inc fell 3.1 percent to $52.02 after the Cheerios cereal maker's fourth-quarter earnings missed expectations.
Barnes & Noble Inc rose 3.6 percent to $21.29. The book retailer said it would spin off its Nook tablets and college books business. It also reported a quarterly loss that narrowed from the previous year.
Medical Action Industries jumped nearly 94 percent to $13.69 on its heaviest one-day volume ever after Owens & Minor Inc agreed to buy the company for about $208 million. Owens rose 1.2 percent to $35.27.
Bristol-Myers Squibb Co advanced 2.9 percent to $49.69 a day after the drugmaker said a late-stage trial testing its immunotherapy nivolumab in advanced melanoma patients was halted early after it was determined that the drug was likely to prolong survival. (Editing by Nick Zieminski and Jan Paschal)