* Q1 GDP data shows economy contracted
* Corporate earnings post biggest fall in a year
* United Rental down 3 pct, weighs on industrials
* Altera near 15-year high of report of Intel interest
* Indexes down: Dow 0.28 pct, S&P 0.19 pct, Nasdaq 0.12 pct (Updates prices)
By Sweta Singh
May 29 (Reuters) - U.S. stocks were lower in morning trading on Friday after data showed the economy shrunk in the first quarter and corporate profits declined the most in a year.
The U.S. government slashed its gross domestic product estimate to show GDP shrinking at a 0.7 percent annual rate instead of the 0.2 percent growth pace it estimated last month.
Economists had expected GDP would be revised to show a contraction of 0.8 percent.
"Monetary policy from the Fed is forward looking and GDP by definition is a rear view mirror and the important thing now is that it wasn't a big miss," said Adam Sarhan, chief executive of Sarhan Capital in New York.
Investors keep a keen eye on economic data for cues to help narrow down the timing of an increase in interest rates by the Federal Reserve.
"So far, the Fed's been data dependant and the data including today's GDP numbers on average continues to be weaker than expected, which removes imminent threat from the Fed to raise rates," Sarhan said.
With growth estimates so far for the second quarter around 2 percent, the economy appears poised for its worst first half performance since 2011.
The GDP report also showed that corporate profits declined 8.7 percent - the largest drop in a year and the second straight quarterly fall - as the dollar weighed on multinational corporations and oil prices hurt domestic firms.
Greece's ability to strike a deal with its euro zone partners by Sunday also weighed on global markets.
A euro zone official said Greece will not be able to get the money still available under its current bailout plan if it does not agree to the outline of a reforms-for-cash deal with creditors by the end of next week.
At 9:55 a.m. ET (1355 GMT), the Dow Jones industrial average was down 50.55 points, or 0.28 percent, at 18,075.57, the S&P 500 was lower by 4.01 points, or 0.19 percent, at 2,116.78 and the Nasdaq Composite was off 6.02 points, or 0.12 percent, at 5,091.95.
Eight of the 10 major S&P 500 sectors were down, with the Industrial sector falling the most at 0.62 percent.
United Rental was the biggest drag on the industrial sector with a 3.9 percent fall to $91.23 after Bank of America Merrill Lynch downgraded the equipment rental company's stock to "underperform" from "neutral".
Rosetta Stone rose 15.7 percent to $7.44 after the education technology company said its board received an expression of interest from RDG Capital Fund Management.
GameStop rose 6.3 percent to $43.52 after the company reported better-than-expected results.
Altera rose as much as 6.1 percent to a near 15-year high of $49.83 after the New York Post reported that Intel was close to buying the chipmaker for about $15 billion. Intel was up 1.2 percent at $34.43.
Decliners outnumbered advancers on the NYSE by 1,769 to 934, for a 1.89-to-1 ratio on the downside. On the Nasdaq, 1,436 issues fell and 885 advanced for a 1.62-to-1 ratio favoring decliners.
The S&P 500 index showed nine new 52-week highs and six new lows, while the Nasdaq recorded 41 new highs and 11 new lows. (Additional reporting by Sayantani Ghosh in Bengaluru; Editing by Savio D'Souza)