US SMALL/MIDCAPS-Materials rally after China rate cut

NEW YORK, June 7 (Reuters) - Material and industrial shares in the mid- and small-cap space rallied on Thursday on an improved demand outlook after China's central bank cut lending and deposit interest rates.

Shares rose for a third day, but broader gains were limited after U.S. Federal Reserve Chairman Ben Bernanke dashed hopes for further stimulus measures from the central bank. Consumer discretionary shares fell.

China's central bank lowered benchmark interest rates by 25 basis points in an effort to rejuvenate economic growth, boosting sectors tied to the pace of expansion. Mid-cap material shares gained 1.5 percent while the small-cap equivalent was up 1.3 percent.

"China is trying boost consumer and infrastructure spending, which hopefully means the upcoming data we'll see out of there will be strong," said Wayne Kaufman, chief market analyst at John Thomas Financial in New York. He said he expected China's move to be the first of a series of rate cuts by the central bank.

"If this is the start of a cycle of lowered rates, that will be very positive," he said.

Among the most active names in the material space, Reliance Steel rose 2.4 percent to $48.82, and Worthington Industries added 2.4 percent to $16.87. Century Aluminum rose 2.8 percent to $7.67.

The S&P MidCap 400 index gained 0.5 percent while the S&P SmallCap 600 index climbed 0.2 percent. The benchmark S&P 500 rose 0.7 percent.

Shares were off their earlier highs after Bernanke said the U.S. central bank was ready to shield the economy if financial troubles mount, but offered few hints that further monetary stimulus was imminent.

"Bernanke was really giving the message that you can't just look to the Fed for help," Kaufman said. "That was very predictable, but some people are disappointed."

Consumer discretionary stocks were among the weakest of the day, and the small-cap index for the group fell 0.4 percent.

In company news, Men's Warehouse Inc slumped 18 percent to $29.17 a day after forecasting weaker second-quarter profits on delays in corporate orders for uniforms in the UK.

Truck and engine maker Navistar International Corp plunged 13 percent to $24.36 after reporting a second-quarter loss.