* Most U.S. banks pass stress tests, Citi among the 'fails'
* Apple up for sixth day after price target hikes
* Low volume seen as calling rally into question
* Dow flat, S&P off 0.3 pct, Nasdaq off 0.4 pct
By Ryan Vlastelica
NEW YORK, March 14 (Reuters) - U.S. stocks mostly edged lower on Tuesday, with the S&P 500 pulling back after nearing 1,400 as investors found little reason to extend the previous day's rally on the U.S. Federal Reserve's comments on the economy and the banking sector.
While the broader market was flat to slightly lower, the momentum continued in Apple Inc. Shares of Apple surged for a sixth straight day, climbing 2.4 percent to $581.60 following positive comments from analysts. Morgan Stanley and Canaccord Genuity lifted their price targets on the stock to above $700.
Shares of Apple have surged 44 percent so far this year, leading some to call for a pullback in the largest U.S. company by market cap.
"We do worry that the move in Apple has been a little too much, too fast, as the fear is that as shares rise, expectations will get overly optimistic," said Channing Smith, co-portfolio manager of the Capital Advisors Growth Fund at Capital Advisors in Tulsa, Oklahoma.
While Smith, whose fund owns Apple, said he wouldn't be surprised to see a pullback in the stock, "it has gone from being extremely undervalued to just undervalued now," citing the potential of new products.
The Fed said late Tuesday most of the largest U.S. banks passed their annual stress tests of capital strength in a report that underscored the financial sector's recovery, but called out a few that failed, including Citigroup Inc.
The central bank also forecast "moderate" growth over coming quarters with the unemployment rate declining gradually versus the "modest" growth the central bank said it expected in January. The change in language, used in the Fed's statement after a one-day policymakers' meeting, was seen as a slight upgrade of the economic outlook.
Bank stocks, a major component of the S&P 500's 11 percent gain for the year, led a late-day surge in Tuesday's rally. The KBW Bank index was up 0.5 percent, with its gain for the year at 21 percent.
Bank of America, up 2.6 percent at $8.71, and American Express, up 2.9 percent at $55.81, ranked among the S&P 500's best performers. But Citigroup, Wells Fargo , Goldman Sachs and MetLife were among the benchmark's biggest drags. Citi fell 3.9 percent to $35.03.
The Dow Jones industrial average was up 1.63 points, or 0.01 percent, at 13,179.31. The Standard & Poor's 500 Index was down 4.36 points, or 0.31 percent, at 1,391.59. The Nasdaq Composite Index was down 10.77 points, or 0.35 percent, at 3,029.11.
The three major U.S. stock indexes hit multi-year highs in Tuesday's rally, led by the banking industry. Volume on the New York Stock Exchange, NYSE Amex and Nasdaq was close to last year's daily average during March, a significant improvement compared with recent days.
"Seeing that financials are largely stronger than the market expected gave us the push we needed to break through the levels we were at," Smith said. "Momentum is clearly in place, but we'd like to see greater participation and stronger volume."
The S&P 500 hit a high of 1,399.42, its highest level since early June 2008. The 1,400 level could generate some resistance, but chartists point to the 1,425-1,440 area for the next technical hurdle.
Volume on the New York Stock Exchange, the American Stock Exchange and the Nasdaq hit 7.57 billion shares on Tuesday, near the 7.87 billion daily average in March 2011. The average so far in 2012 is 6.86 billion.
The increasing optimism about the U.S. economy helped lift the dollar to an 11-month high against the yen and a 1-month high versus the euro.
The greenback's advance alongside a strong equities market underscores investors' bet that the U.S. economic recovery is sustainable.
NXP Semiconductors rose 3.5 percent to $25.75 after Goldman Sachs added the chip maker to its "conviction buy" list and raised its price target to $30.
But Zynga Inc reversed its earlier gain, sliding 0.9 percent to $13.25. In morning trading, the stock had climbed to an intraday high of $13.70. Before the opening bell, Zynga announced a secondary offering of up to $400 million.