(Corrects paragraph 4 to say North, not South Carolina)
* Rates won't have to rise too much to reach neutral level -Fed's Yellen
* Temporary factors appear to be holding down inflation -Yellen
* Fed's Beige Book shows moderate economic growth
* Indexes up: Dow 0.6 pct, S&P 0.7 pct, Nasdaq 1.1 pct
By Kimberly Chin
NEW YORK, July 12 (Reuters) - The Dow rose to a record high close while U.S. stocks kept their upward momentum Wednesday following Federal Reserve Chair Janet Yellen's congressional testimony to gradually raise interest rates.
Yellen's speech was a nod to Wall Street as the Fed signaled it will gradually tighten policy and gradually unwind its massive balance sheet. A neutral interest rate level refers to one that neither encourages nor discourages economic activity.
Investors cheered Yellen's dovish tone, alleviating some concerns over the recent dip in inflation.
"People were worried about her coming out more hawkish. She said exactly what the market expected and that's why the market was happy with it," said Chris Zaccarelli, chief investment officer at Cornerstone Financial Partners, based near Charlotte, North Carolina.
The rate-sensitive S&P 500 real estate index was among the strongest in the benchmark index, posting a 1.3 percent gain, its biggest one-day percentage gain in about four months. Technology shares also rose sharply, with the tech index also up 1.3 percent.
The dovish sentiment from the Fed at the same time put the S&P 500 financials, which tend to benefit from higher rates, last among sectors, ending with just a gain of 0.1 percent.
The Dow Jones Industrial Average rose 123.07 points, or 0.57 percent, to close at 21,532.14, a record high. The Dow also hit an intraday record.
The S&P 500 gained 17.72 points, or 0.73 percent, to 2,443.25 and the Nasdaq Composite added 67.87 points, or 1.10 percent, to 6,261.17.
An index of airline stocks was up 2.3 percent after the No. 1 U.S. airline, American Airlines Group Inc, reported quarterly results that beat expectations and its shares rose 4.2 percent.
Delta Air Lines Inc, United Continental Holdings Inc , Alaska Air Group Inc, Spirit Airlines Inc and JetBlue Airways Corp stocks also gained at least 1 percent each.
Delta Air Lines is due to report results Thursday. On Friday, reports from three of the biggest U.S. banks - JPMorgan Chase, Wells Fargo and Citigroup - are expected.
Stocks held their gains after the Fed's latest Beige Book report showed that the U.S. economy grew at a "slight to moderate" pace over the last several weeks across all regions.
Advancing issues outnumbered declining ones on the NYSE by a 3.52-to-1 ratio; on Nasdaq, a 2.23-to-1 ratio favored advancers.
The S&P 500 posted 27 new 52-week highs and 11 new lows; the Nasdaq Composite recorded 81 new highs and 69 new lows.
About 6.1 billion shares changed hands on U.S. exchanges. That compares with the 6.9 billion daily average for the past 20 trading days, according to Thomson Reuters data. (Reporting by Kimberly Chin; Additional reporting by Sweta Singh and Tanya Agrawal in Bengaluru; Editing by Leslie Adler and James Dalgleish)