* Yellen says case for rate hike has strengthened
* Financials stocks surge, led by banks
* Herbalife drops on report of Icahn's planned stake sale
* Indexes up: Dow 0.57 pct, S&P 0.64 pct, Nasdaq 0.73 pct (Adds details, comments, updates price)
By Yashaswini Swamynathan
Aug 26 (Reuters) - Wall Street was higher on Friday morning after Federal Reserve Chair Janet Yellen said the case for raising U.S. interest rates has strengthened in recent months.
Yellen, speaking before a gathering of global central bankers in Jackson Hole, Wyoming, did not indicate when the Fed would raise rates, but said the central bank thinks future hikes should be "gradual".
"In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months," Yellen said in prepared remarks.
All 10 major S&P 500 sectors were higher. Financials , which stand to gain the most if rates are raised, jumped 0.78 percent.
Bank of America, JPMorgan, Goldman Sachs' , Citigroup and Wells Fargo rose between 0.9 percent and 2 percent.
At 10:24 a.m. EDT the Dow Jones Industrial Average was up 104.33 points, or 0.57 percent, at 18,552.74.
The S&P 500 was up 13.91 points, or 0.64 percent, at 2,186.38 and the Nasdaq Composite was up 37.84 points, or 0.73 percent, at 5,250.04.
The dollar index pared losses to trade largely flat.
"Yellen wants to set the table for a September hike, but perhaps only deliver the hike in November or December," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management, in Menomonee Falls, Wisconsin.
The markets have been on tenterhooks all of this week in the run-up to Yellen's speech. Wall Street has dropped about 0.5 percent from Monday through Thursday.
A report on Friday showed the U.S. economy grew at a slower pace than previously estimated for the second quarter. However, consumer spending, which makes up more than two-thirds of economic activity, was revised up to show it increased at the fastest rate since the fourth quarter of 2014.
Shares of Herbalife fell 5.8 percent after a report said Carl Icahn, the nutritional supplement maker's top shareholder, was looking to sell his stake.
GameStop dropped 8 percent after quarterly revenue at the world's largest retailer of video games missed analysts' estimates.
Advancing issues outnumbered decliners on the NYSE by 2,254 to 511. On the Nasdaq, 1,918 issues rose and 596 fell.
The S&P 500 index showed 27 new 52-week highs and 1 new low, while the Nasdaq recorded 86 new highs and 10 new lows. (Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Savio D'Souza)