* Indexes poised for biggest 2-day gain since 2009
* 2nd-qtr GDP rose 3.7 pct vs earlier reading of 2.3 pct
* All 10 S&P sectors higher; led by energy
* Indexes up: Dow 2.26 pct, S&P 2.43 pct, Nasdaq 2.48 pct (Adds details, updates prices)
By Tanya Agrawal
Aug 27 (Reuters) - U.S. stocks extended their rally on Thursday, raising hopes that the worst of Wall Street's recent turmoil was behind it, after further evidence that the economy was on a solid footing.
The three major indexes were up more than 2 percent in early afternoon trading and were poised for their biggest two-day gain since 2009.
Data showed that the U.S. economy grew 3.7 percent in the second quarter - better than expected and much faster than the previous estimate of 2.3 percent.
Signs that the market was stabilizing rekindled expectations of an interest rate increase this year but interest rate swap rates indicated only a 25 percent chance of a hike next month.
The market snapped a 6-day losing streak on Wednesday after New York Fed President William Dudley said the case for a September hike was "less compelling" after recent market turmoil sparked by fears of slowing growth in China.
"I think in terms of sharp drops, the worst is probably behind us but it's going to take a while before we get back to normal and we might still see some downward risk," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
Underscoring signs of stability in the market, the CBOE Volatility index - popularly known as the "fear index" - fell 18 percent to 24.86. The index had soared to a more than 6-year-high earlier in the week.
"Today's GDP data shows that the U.S. economy's fundamentals are strong and are growing despite all the global headwinds," said Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Massachusetts.
The U.S. Federal Reserve, which meets on Sept. 16-17, has said it will raise rates only when it sees a sustained recovery in the economy.
The Fed has kept interest rates at near zero, which has helped fuel the stock market to historic levels since the financial crisis.
Investors will be keeping an eye on an annual conference of some of the world's top central bankers in Jackson Hole, Wyoming over the next few days for further clues on interest rates.
The market also got a rare dose of good news from China, where stocks snapped a brutal five-day losing streak.
At 13:01 ET (1701 GMT), the Dow Jones industrial average was up 367.65 points, or 2.26 percent, at 16,653.16, the S&P 500 was up 47.12 points, or 2.43 percent, at 1,987.63 and the Nasdaq composite was up 116.35 points, or 2.48 percent, at 4,813.89.
All 10 major S&P sectors were higher, with the energy index's 4.7 percent rise leading the advancers as oil prices soared more than 9 percent in one of the biggest one-day rallies in years. Chevron's 5.3 percent rise gave the biggest boost to the Dow.
Shares of Apple, which helped lead the market higher on Wednesday, were up 2.9 percent at $112.94. The company invited journalists to a Sept. 9 event, where it is expected to unveil new iPhones and possibly a new version of its Apple TV set-top box. The stock provided the biggest boost to the S&P and the Nasdaq.
St Jude Medical rose as much as 15 percent in premarket trade after the Financial Times reported that Abbott Laboratories was preparing a $25 billion bid for the company.
But the stock pared much of those gains after an Abbott spokesman told Reuters it was not pursuing an offer. St Jude was up 4.5 percent at $72.47.
Tesla was up 8.5 percent at $243.69 after its Model S P85D received the highest possible score in test by influential magazine Consumer Reports.
Advancing issues outnumbered decliners on the NYSE by 2,765 to 307. On the Nasdaq, 2,279 issues rose and 486 fell.
The S&P 500 index showed one new 52-week high and one new low, while the Nasdaq recorded 12 new highs and 34 new lows. (Reporting by Tanya Agrawal; Editing by Saumyadeb Chakrabarty)