* Fed announcement expected at 2 p.m. ET (1900 GMT)
* Yellen speaks half an hour later
* Traders see a more than 80 pct chance of hike on Wednesday
* Indexes up: Dow 0.18 pct, S&P 0.36 pct, Nasdaq 0.30 pct (Adds link to graphic, updates prices)
By Tanya Agrawal
Dec 16 (Reuters) - Wall Street rose for the third straight day on Wednesday ahead of a widely anticipated interest rate hike by the Federal Reserve later in the day.
An increase in the Fed's benchmark rate from near zero would be the first since June 29, 2006. Traders see an 81.4 percent chance of a rate hike, according to the CME Group's FedWatch tool.
The U.S. central bank is seen raising rates by a token 25 basis points, when it announces the outcome of its policy meeting at 2 p.m. ET (1900 GMT), followed by a press conference by Chair Janet Yellen at 2:30 p.m. ET.
The Fed is expected to move gradually on subsequent rate hikes after the initial liftoff, according to a Reuters poll. That will help soothe jittery markets, which have been roiled recently by a rout in crude oil prices and a fall in the Chinese yuan.
The rate hike will be a highly symbolic move, coming exactly seven years to the day since the Fed cut rates to near zero as the financial crisis engulfed the world.
Since then, the U.S. stock market has staged a spectacular bull-run, with the S&P 500 index more than doubling and the Nasdaq composite index briefly breaching its dotcom boom highs.
"Far and away, the most important takeaway from the Fed meeting is their expectations of the velocity of the rate rise," said Philip Blancato, chief executive at Ladenberg Thalmann Asset Management in New York.
"I know that they don't have a crystal ball, but I want to get a better expectation for how quickly they expect to raise rates."
At 12:35 p.m. ET the Dow Jones industrial average was up 32.4 points, or 0.18 percent, at 17,557.31, the S&P 500 was up 7.41 points, or 0.36 percent, at 2,050.82 and the Nasdaq Composite index was up 14.77 points, or 0.3 percent, at 5,010.13.
Seven of the 10 major S&P sectors were higher, with the utilities index's 1.85 percent rise leading the advancers.
Energy and material stocks were down as crude oil prices fell on fresh evidence of growing global oversupply.
DuPont's 2.9 percent fall weighed the most on the Dow, followed by a 1.7 percent fall in Chevron.
Apple was down 1.3 percent at $109.05 as Bank of America Merrill Lynch joined a growing Wall Street chorus on lower iPhone sales expectations.
Higher interest rates make loans more expensive, crimping profit margins. Banks, however, will benefit.
Goldman Sachs rose 0.7 percent, while JPMorgan , Bank of America and Citigroup were up 0.2 percent.
The Fed has said it would raise rates when it saw a sustained recovery in the economy. While the unemployment rate has fallen to multi-year lows, inflation remains stuck below the Fed's 2 percent target.
"We expect the start of policy normalization to serve as a catalyst for normalization of the investment environment," said Mike O'Rourke, chief market strategist at Jones Trading.
The prolonged period of extremely accommodative monetary policy has distorted investment objectives, he said in a note.
Honeywell was up 4.4 percent at $102.79 after the company reaffirmed its full-year outlook and was the biggest boost on the S&P.
Advancing issues outnumbered decliners on the NYSE by 2,073 to 938. On the Nasdaq, 1,744 issues rose and 999 fell.
The S&P 500 index showed nine new 52-week highs and eight new lows, while the Nasdaq recorded 30 new highs and 69 new lows.
Reporting by Tanya Agrawal and Abhiram Nandakumar; Editing by Anil D'Silva