* U.S. manufacturing growth sturdy in June
* Dow fails to hit 17,000 milestone
* Dow up 0.8 pct; S&P 500 up 0.7 pct; Nasdaq up 1.1 pct (Updates to close)
By Angela Moon
NEW YORK, July 1 (Reuters) - The Dow and the S&P 500 closed at record highs on Tuesday as manufacturing activity picked up in the United States and Asia and increased optimism about the global economy's health.
The blue-chip Dow Jones industrial average came close to the 17,000 milestone in early afternoon trading, rising slightly over 1 percent to 16,998.70. The rally - led by IBM, up 2.8 percent at $186.35, and Visa Inc, up 1.7 percent at $214.25 - marked the first trading day of both the third quarter and the second half of 2014. The U.S. stock market will be closed on Friday for the Independence Day holiday on the Fourth of July.
Financial data firm Markit said its final U.S. Manufacturing Purchasing Managers Index rose to 57.3 in June, the highest since May 2010, although it was slightly lower than the preliminary read of 57.5.
A report from the Institute for Supply Management showed its index of national factory activity was at 55.3, little changed from May's 55.4 reading.
"The basic message is that it's pretty much the same level as May so that's very positive news for the U.S. manufacturing," said Anthony Karydakis, chief economic strategist at Miller Tabak in New York.
The Dow Jones industrial average rose 129.47 points or 0.77 percent, to end at 16,956.07. The S&P 500 gained 13.09 points or 0.67 percent, to 1,973.32. The Nasdaq Composite shot up 50.47 points or 1.14 percent, to 4,458.65.
Shares of Netflix Inc rose 7.4 percent to $473.10 after Goldman Sachs raised its rating on the streaming video company's shares to "buy" from "neutral", according to theflyonthewall.com.
Twitter shares jumped 2.6 percent to $42.05 on news that a former Goldman Sachs executive would become the company's new chief financial officer while current CFO Mike Gupta will become senior vice president of strategic investments.
Shares of credit and debit card companies rose after Elvira Nabiullina, the chairwoman of Russia's central bank, said Russia may reduce pledges imposed on MasterCard and Visa if they find local processing partners. MasterCard shares climbed 2.8 percent to $75.53.
Positive data from Asia helped buoy investors' confidence in the strength of the global economy, including China's final reading of the HSBC/Markit purchasing managers' index (PMI) for June, which rose to 50.7 from May's 49.4.
Manufacturing in Japan, the world's third-biggest economy, also picked up in June, fueled by improving demand at home. Growth in the euro zone, however, faltered as Germany, the region's top economy, slowed.
About 5.84 billion shares changed hands on U.S. exchanges, in line with last month's average of about 5.8 billion, according to data from BATS Global Markets.
Advancers outnumbered decliners on the New York Stock Exchange by a ratio of about 2 to 1, while on the Nasdaq, nearly three stocks rose for every one that fell. (Editing by Bernadette Baum and Jan Paschal)