* February PCE growth slows
* S&P 500 gains for second straight quarter
* For the day, Dow up 1.3%, S&P 500 up 1.4%, Nasdaq up 1.7%
NEW YORK, March 31 (Reuters) - Wall Street rallied more than 1% on Friday and the Nasdaq notched its biggest quarterly percentage gain since June 2020, as signs of cooling inflation bolstered hopes the Federal Reserve might soon end its aggressive interest rate hikes.
The S&P 500 closed at its highest level since Feb. 15 and posted a second straight quarter of gains, led by the technology sector's 21.5% rise in the first quarter.
The quarterly gains came despite a sharp sell-off in bank stocks following the collapse of two regional banks earlier this month and worries about a potential bigger financial crisis.
The S&P 500 financial sector was the quarter's worst-performing sector, posting a 6.1% drop, while the KBW regional bank index fell 18.6% for the period.
The Commerce Department report Friday showed U.S. consumer spending rose moderately in February while inflation cooled.
"The equity market seems to be delighted with the slight tick lower in inflation, as it should be. It underscores that the Fed's campaign is, in fact, working, albeit slowly," said Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina.
The Fed has been raising rates to cool inflation. Expectations for a 25 basis point rate hike at its May meeting dipped to about 50%, with no hike seen to be just as likely.
The Dow Jones Industrial Average rose 415.12 points, or 1.26%, to 33,274.15, the S&P 500 gained 58.48 points, or 1.44%, to 4,109.31 and the Nasdaq Composite added 208.44 points, or 1.74%, to 12,221.91.
For the week and month, stocks also posted strong gains. The Nasdaq was up 6.7% for March.
For the quarter, the Nasdaq jumped 16.8% in its biggest quarterly percentage increase since the three months ended June 2020. The S&P 500 gained 7% and the Dow rose 0.4% in the quarter, based on the latest available data.
Semiconductors were among the quarter's strongest performing stocks, with the Philadelphia semiconductor index rising 27.6%.
Shares of big tech gained as investors rotated out of banks and as U.S. Treasury yields eased, with the two-year note yield posting on Friday its largest monthly drop since 2008. Higher yields tend to be a negative for big tech companies.
Apple Inc shares ended up 1.6% on Friday, rising along with other megacaps. It also won its appeal against the decision by Britain's antitrust regulator to launch an investigation into its mobile browser and cloud gaming services.
Also on Friday, Boston Fed President Susan Collins said that wherever the U.S. central bank stops with its rate rises, maintaining that level for some time will be critical in helping to lower high inflation back to the 2% target.
Volume on U.S. exchanges was 11.98 billion shares, compared with the 12.74 billion full-session average over the last 20 trading days.
Advancing issues outnumbered decliners on the NYSE by a 4.78-to-1 ratio; on Nasdaq, a 2.45-to-1 ratio favored advancers.
The S&P 500 posted 19 new 52-week highs and no new lows; the Nasdaq Composite recorded 81 new highs and 131 new lows.
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