By Caroline Valetkevitch

NEW YORK (Reuters) - Stocks should score a second straight year of gains in 2010 as an economic recovery brightens the profit outlook, extending the market's rebound from the depths of a punishing financial crisis, a Reuters poll showed on Wednesday.

Most of the upside is forecast for the first half of the year as investors bet on a more stable economy boosting sectors like technology, industrials and materials.

The second half of 2010 will be more muted as investors seek clarity on when and how the U.S. Federal Reserve might tighten monetary policy by raising interest rates or draining the financial system of excess liquidity, or both.

The survey of about 40 analysts at top Wall Street dealers, brokerages and fund managers taken over the last week showed a median target of 1,208 for the benchmark Standard & Poor's 500 index <.SPX> at the end of next year.

That's an increase of roughly 10 percent from the S&P's closing price on Tuesday of 1,107.93.

"Most of the economic numbers still point to sustained growth going into 2010," said Peter Cardillo, chief market economist at Avalon Partners in New York. "I am not looking for a double-dip recession. The debt problems in Europe, Dubai, all over the place are manageable. That's another plus."

Last month, concerns over a possible debt default by the United Arab Emirates' state-owned conglomerate Dubai World spooked global markets but they have since regained their poise.

The median S&P 500 target for year-end 2009 was 1,103, barely changed from a target of 1,080 in the September poll. That would mean a gain of 22 percent for the S&P 500 this year It is already up 64 percent since the March lows.

For the Dow Jones industrial average <.DJI>, the median forecast for end-2010 was 11,100. The median forecast was 10,426 for the end of 2009, up from 10,010 in September. That would mean an increase in the Dow of nearly 19 percent for 2009.

Last year, the S&P closed down 38 percent, its first annual loss in six years and the worst drop since the 1930s.

The market crash and deep economic downturn followed months of housing and credit market problems, and then, in September 2008, the collapse of Lehman Brothers.

FED WATCH

The Fed took aggressive steps to keep the U.S. economy afloat, including pushing interest rates to near-zero levels and taking a series of extraordinary steps aimed at backstopping financial markets and getting credit flowing again.