* China cuts interest rate for second time in two months
* Oil prices rebound but still near 6-1/2-year lows
* Apple up 4.7 pct, BofA leads banks higher
* Nine of the 10 major S&P sectors higher
* Indexes up: Dow 1.4 pct, S&P 1.35 pct, Nasdaq 2.18 pct (Adds quote, updates prices)
By Tanya Agrawal
Aug 25 (Reuters) - U.S. stocks retreated from their highs after staging their sharpest rally of the year on Tuesday, a day after the market's worst performance in four years.
Investors snapped up beaten-down stocks from the opening bell but caution set in by early afternoon amid lingering concerns that a slowdown in China could hobble global growth.
"(It's) just investor confusion," said Art Hogan, chief market strategist at Wunderlich Securities in New York. "They are trying to figure out what the slowdown in China means to the global economy," he said.
Brian Battle, director of trading at Performance Trust Capital Partners in Chicago, said the market was going through a process of price discovery.
"We had a panic yesterday. As people get back in the market they're questioning what everything is worth."
Financial markets got an early boost from China's second interest rate cut in two months.
What is needed now is positive economic data from China, said Xavier Smith, investment director at Centre Asset Management.
"Only when we see that will the rallies be sustainable."
The move by China's central bank came after Chinese stocks slumped 8 percent on Tuesday following an 8.5 percent drop on Monday.
The Nasdaq composite index led stocks higher with a 2.2 percent rise, boosted by Apple's 4.7 percent jump to $108.
The stock slumped as much as 13 percent on Monday, when the Dow Jones industrial average fell more than 1,000 points in its biggest intraday fall ever and the S&P 500 recorded its worst day since 2011.
Analysts were cautious, however, and even with Tuesday's gains, the Dow and the S&P were on track for the their worst monthly losses since February 2009 and the Nasdaq for its steepest drop since November 2008.
JPMorgan cut its forecast for their year-end target for the S&P 500 to 2,150 from 2,250.
At 14:05 ET (1805 GMT), the S&P 500 was up 25.58 points, or 1.35 percent, at 1,918.79, the Dow was up 222.54 points, or 1.4 percent, at 16,093.89 and the Nasdaq was up 98.57 points, or 2.18 percent, at 4,624.82.
The S&P rose as much 2.9 percent, the Dow as much as 2.8 percent and the Nasdaq as much as 3.6 percent.
The brokerage lowered its weightings for the energy, financial and industrial sectors but raised consumer and health, suggesting these companies are better able to withstand a slowdown in global growth.
Data on Tuesday showed U.S. consumer confidence increased to a seven-month high in August.
Nine of the 10 major S&P sectors were higher in early afternoon trading, with the consumer discretionary index's 2.5 percent rise leading the advancers, helped by Amazon's 3.5 percent rise.
The utilities sector was the laggard.
U.S. banks rose along with expectations of a rate hike this year, with Bank of America up 3.5 percent at $15.82.
Oil prices also came off their highs and U.S. crude remained below $40 per barrel.
New U.S. single-family home sales rebounded in July, adding to evidence of underlying strength in the economy that could allow the Federal Reserve to raise interest rates this year.
Traders now see a 26 percent chance that the Fed would increase rates in September, up from 22 percent on Monday, according to overnight indexed swap rates.
The dollar, which fell to a 7-month low against a basket of currencies on Monday, was up more than 1.24 percent.
Among the big gainers, Facebook was up 4.1 percent at $85.49 and Netflix 7 percent at $103.67.
Best Buy jumped 14.1 percent to $33.41 after the owner of the biggest U.S. electronics chain reported an unexpected increase in quarterly sales.
Advancing issues outnumbered decliners on the NYSE by 2,321 to 761. On the Nasdaq, 2,062 issues rose and 758 fell.
The S&P 500 index showed one new 52-week high and 11 new lows, while the Nasdaq recorded seven new highs and 72 new lows. (Additional reporting by Saqib Iqbal Ahmed in New York; Editing by Savio D'Souza and Saumyadeb Chakrabarty)