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Fed rate cut debate in view as U.S. job market cools

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S&P 500 tech sector hits record high

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Banks down ahead of Q2 results next week

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Macy's up on report Arkhouse, Brigade Capital raise buyout

offer

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Indexes up, Dow 0.17, S&P 0.54, Nasdaq 0.9%

(Adds analyst quote in paragraph 8-9, adds prices)

By Saeed Azhar, Ankika Biswas and Lisa Pauline Mattackal

NEW YORK, July 5 (Reuters) -

Wall Street stock indexes closed firmer on Friday, with the

tech-heavy Nasdaq and benchmark S&P 500 hitting record highs,

as new data showing U.S. labor market weakness boosted

expectations for interest rate cuts as early as September.

The rally was fueled by megacap stocks such as Microsoft ( MSFT )

which rose nearly 1.5% to end at a record high.

Meta Platforms ( META ) also scored an all-time closing

high, gaining around 5.9% to push the information technology

sector to a record high.

S&P 500 communication services was the top

performing sector, reaching its highest level since 2000.

The Dow Jones Industrial Average rose 67.87 points,

or 0.17%, to close at 39,375.87. The S&P 500 gained 30.17

points, or 0.54%, at 5,567.19 and the Nasdaq Composite

advanced 164.46 points, or 0.90%, to 18,352.76.

For the week, the S&P 500 gained 1.95%, the Nasdaq rose 3.5%

pct, and the Dow climbed 0.66%.

Labor Department data showed U.S. jobs growth slowed

marginally in June, and the unemployment rate rose to an over

2-1/2-year high, while wage gains slowed.

Investors expect the data could stir more active debate on

rate cuts when the Federal Reserve meets later this month. Odds

of the U.S. central bank easing in September jumped to 79% from

66% seen before the data, CME's FedWatch Tool showed.

"This report puts the Fed in a comfortable spot," said Peter

Cardillo, chief market economist at Spartan Capital Securities.

"If this continues next month, with no increases in

hourly wages, then I think we'll see a rate cut in September and

another one in December."

Data released earlier this week also pointed to the U.S.

economy losing steam, helping the S&P 500 and Nasdaq notch

record closing highs during Wednesday's holiday-shortened

session.

"We're in this kind of stagflation adjacent environment

- growth is moderating, inflation is staying where it is for the

time being," said Alex McGrath, chief investment officer for

NorthEnd Private Wealth.

He said the environment is not great for small caps,

which are sensitive to interest rates, but megacap companies are

pumping out strong earnings which keep the market strong.

The Russell 2000 Small Cap index is down 0.95% for the

week.

Major banks fell ahead of second-quarter corporate earnings

reports starting next Friday.

Higher interest rates and an uncertain economic

environment are casting a cloud over U.S. bank earnings.

Bank of America ( BAC ), Wells Fargo ( WFC ) and JPMorgan &

Chase ( JPM ) dropped between 1.2% to 1.7%, pushing the S&P 500

banks index 1.6% lower.

Macy's on Friday surged 9.5% after a report said

Arkhouse Management and Brigade Capital raised their bid to buy

the department store chain for about $6.9 billion.

Advancing issues outnumbered decliners by a 1.04-to-1 ratio

on the NYSE. On the Nasdaq, declining issues outnumbered

advancers by a 1.05-to-1 ratio.

The S&P 500 posted 19 new 52-week highs and eight new

lows while the Nasdaq Composite recorded 46 new highs and 162

new lows.

Volume on U.S. exchanges was 9.73 billion shares,

compared with the 11.57 billion average for the full session

over the last 20 trading days.