* All major S&P sectors up
* Fed's Dudley says Sept rate hike "less compelling"
* Google gains after Goldman raises rating
* Cameron International soars on Schlumberger deal
* Indexes up: Dow 1.15 pct, S&P 1.03 pct, Nasdaq 0.88 pct (Adds quote, updates prices)
By Tanya Agrawal and Sweta Singh
Aug 26 (Reuters) - U.S. stocks lost much of their early gains in afternoon trading on Wednesday as ongoing worries about China's economy outweighed the apparently receding chance of a U.S. rate hike in September.
In the clearest indication yet that market ructions could affect U.S. monetary policy, New York Fed President William Dudley said the prospect of a September rate hike seemed "less compelling" than it was only weeks ago.
Dudley said he would want to see more U.S. economic data, and also how markets behave in coming weeks, before making a final judgment on when monetary policy should be tightened.
Data earlier on Wednesday appeared to strengthen the case for a rise in interest rates next month.
Durable goods orders rose 2 percent in July, compared with analysts' average forecast of a 4 percent fall. Orders for core capital goods, a proxy for business investment, rose 2.2 percent - the biggest gain in 13 months.
At 12:54 p.m. ET (1654 GMT), the Dow Jones industrial average was up 180.66 points, or 1.15 percent, at 15,847.1, the S&P 500 was up 19.25 points, or 1.03 percent, at 1,886.86 and the Nasdaq composite was up 39.71 points, or 0.88 percent, at 4,546.20.
The indexes were all up more than 2.5 percent in early trading.
Although stocks were off their highs, all 10 major S&P 500 sectors were up, led by the technology index's 1.6 percent gain, raising hopes that Wall Street could snap its six-day losing streak.
Apple provided the biggest boost to the three major U.S. indexes, rising 1.6 percent to $105.37.
Wednesday's gains followed a dramatic day of trading on Tuesday, when the three main indexes reversed course suddenly to close sharply lower.
"I think today's early rally is because nothing particularly bad happened overnight and while everyone is looking at China very nervously, today's data showed that the U.S. is growing," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.
Up to Tuesday's close, the Dow had lost 10.71 percent in the past six trading days, while the S&P 500 dropped 11.71 percent and the Nasdaq composite 11.5 percent.
The S&P 500 rose as much as 2.9 percent on Tuesday before closing down 1.35 percent, while the Dow rose as much as 2.8 percent before closing down 1.29 percent. The Nasdaq rose as much as 3.6 percent before ending down 0.44 percent.
The Shanghai Composite Index ended down for the fifth straight day, underscoring fragile confidence and deep doubt over whether the Chinese central bank's cuts in interest rates and reserve ratios on Tuesday could stabilize the economy.
Google was up 3.3 percent at $632.50 after Goldman Sachs raised its rating to "buy" from "neutral" and added it to its conviction buy list.
Cameron International soared 40.6 percent to $59.70 after Schlumberger, the world's No.1 oilfield services company, said it would buy the oilfield equipment maker in a $14.8 billion deal. Schlumberger fell 4.8 percent to $69.08.
Abercrombie & Fitch jumped 9.5 percent to $18.92 after the teen apparel retailer reported better-than-expected quarterly sales.
Advancing issues outnumbered decliners on the NYSE by 1,714 to 1,309. On the Nasdaq, 1,415 issues rose and 1,350 fell.
The S&P 500 index showed no new 52-week highs and 28 new lows, while the Nasdaq recorded four new highs and 125 new lows. (Editing by Saumyadeb Chakrabarty)