* Crude prices up about 2 pct, off session highs
* Q4 GDP increased at 1 pct annual rate
* J.C. Penney jumps after results
* Indexes up: Dow 0.22 pct, S&P 0.39 pct, Nasdaq 0.48 pct (Adds details, changes comment, updates prices)
By Abhiram Nandakumar
Feb 26 (Reuters) - Wall Street inched higher on Friday after data showed that a slowdown in U.S. economic growth was not as bad as expected, but gains were capped as oil prices came off sessions highs.
Gross domestic product increased at a 1 percent annual rate instead of the previously reported 0.7 percent pace. The economy grew at a rate of 2.0 percent in the third quarter.
U.S. crude prices, a major stock market driver this year, rose nearly 5 percent but pared some of those gains and were up about 2 percent at 11:11 a.m. ET.
"We've been low on oil for so long that stable or slightly higher oil price is viewed positively as a stabilizing effect on the economy and stock market," said Mark Spellman, portfolio manager at Alpine Funds in New York.
The S&P is on track for its best two-week performance since last February, staging a recovery from one of the worst starts to a year.
At 11:11 a.m. ET (1611 GMT), the Dow Jones industrial average was up 37.02 points, or 0.22 percent, at 16,734.31, the S&P 500 was up 7.67 points, or 0.39 percent, at 1,959.37 and the Nasdaq Composite index was up 21.98 points, or 0.48 percent, at 4,604.19.
Eight of the 10 major S&P sectors were higher, led by a 1.4 percent rise in the materials sector.
But the S&P financial sector was the biggest influence on the index as the increase in oil prices eased some worries about banks facing defaults from oil and gas companies.
Goldman Sachs provided the biggest boost to the Dow with a 1.8 percent rise, while Bank of America's 3.3 percent increase helped lift the S&P 500.
In other data, U.S. consumer spending rose strongly in January, while underlying inflation picked up by the most in four years, keeping interest rate increases on the table this year.
The U.S. Federal Reserve raised rates in December and Chair Janet Yellen has pointed to a gradual increase through 2016 if data shows the economy is strong enough to withstand a move away from near-zero rates.
Shares of J.C. Penney were up 12.1 percent at $9.38 after the department store operator reported better-than-expected revenue.
Gap was down 4.4 percent at $26.38 after its full-year profit forecast missed estimates.
Advancing issues outnumbered decliners on the NYSE by 1,983 to 902. On the Nasdaq, 1,612 issues rose and 887 fell.
The S&P 500 index showed 20 new 52-week highs and no new lows, while the Nasdaq recorded 33 new highs and 29 lows. (Reporting by Abhiram Nandakumar in Bengaluru; Editing by Saumyadeb Chakrabarty)