* Fed sees three rate hikes in 2017
* Banks lead gainers, boost major indexes
* Dow less than 100 points away from 20,000
* Yahoo falls after data breach raises concerns over Verizon deal
* Indexes up: Dow 0.55 pct, S&P 0.55 pct, Nasdaq 0.62 pct (Updates to early afternoon)
By Tanya Agrawal
Dec 15 (Reuters) - U.S. stocks were off their highs but continued to hover near record levels on Thursday as investors viewed the Federal Reserve's interest rate outlook as a sign of confidence in the economy.
The Fed sees three rate hikes next year instead of the two foreseen as of September, partly as a result of the changes anticipated under President-elect Donald Trump.
Fed Chair Janet Yellen also cited an improving labor market and evidence of faster inflation for its 2017 rate outlook.
The central bank's decision to raise rates comes as Trump, who will be sworn in next month, is expected to cut taxes and boost spending on infrastructure.
"Investors are buying Yellen's story that the rate hike is a vote of confidence in the economy," said Dave Donabedian, chief investment officer of Atlantic Trust in Boston.
"The economy is growing, the job market is strong and that monetary normalization can proceed."
Since the U.S. presidential election, stocks have rallied on bets that Trump's business friendly proposals will stimulate the economy.
The Dow is less than 100 points shy of the 20,000 mark, while the S&P has risen more than 5 percent since Nov.8.
Still, there are some concerns that the rally has gone too far too soon and that valuations are slightly stretched.
"The recent rally is based on sentiment and 'back-of-the-envelope' calculations regarding how the tax reform will help companies. The reforms haven't happened as yet," said Donabedian.
At 12:57 p.m. ET (1757 GMT) the Dow Jones Industrial average was up 107.92 points, or 0.55 percent, at 19,900.45.
The S&P 500 was up 12.5 points, or 0.55 percent, at 2,265.78.
The Nasdaq Composite was up 33.83 points, or 0.62 percent, at 5,470.50.
Ten of the 11 major S&P sectors were higher, with the financial index's 1.40 percent rise leading the gainers. The index touched its highest level since Feb 2008 earlier in the day.
JPMorgan, Wells Fargo and Bank of America were up between 1.5-2.5 percent, boosting the S&P.
Dow was lifted by a 4.3 percent jump in Goldman Sachs .
Economic data on Thursday showed U.S. consumer prices moderated in November, but the underlying trend continued to point to firming inflation pressures.
Yahoo fell 4.8 percent to $38.95 after the technology company disclosed a second massive data breach that raised fears Verizon might kill a deal to buy its core internet business. Verizon was up 0.7 percent at $52.02.
Advancing issues outnumbered decliners on the NYSE by 1,792 to 1,146. On the Nasdaq, 1,786 issues rose and 1,012 fell.
The S&P 500 index showed 37 new 52-week highs and no new lows, while the Nasdaq recorded 138 new highs and 39 new lows. (Reporting by Tanya Agrawal in Bengaluru; Editing by Anil D'Silva)