By Sinéad Carew and Niket Nishant

(Reuters) -The Nasdaq composite and S&P 500 rose modestly on Monday and the Dow was close to flat, as investors bought heavyweight technology stocks and shrugged off the uncertainty of a potential U.S. government shutdown and hawkish remarks from a Federal Reserve official.

The technology sector provided the benchmark S&P's biggest boost as investors bet on growth from artificial intelligence and expectations that the Fed will keep cutting interest rates as it grapples with persistent inflation concerns and labor market uncertainties.

One of this week's major focus points for Wall Street is a standoff between Republicans and Democrats over funding that has raised the prospect of a government shutdown beginning Wednesday, the first day of the U.S. government's fiscal 2026.

Even as the Labor Department prepared for a potential delay of its September jobs report in the event of a shutdown, this did not seem to be the key market driver, said Lindsey Bell, chief strategist at 248 Ventures in Charlotte, North Carolina.

"Investors are clinging to the positives," Bell said, pointing to rate easing hopes and signs of economic resilience from recent releases including housing market and consumer spending data.

"The market is not going to shoot to the moon, because this is a risk. But investors can look through the potential for a shutdown, because if it does occur it will likely be resolved quickly and the market can resume focusing on the things that do matter, like earnings, monetary policy and AI investments."

An earlier Goldman Sachs research report noted that financial markets generally shrug off government shutdowns even as it cautioned that "prior shutdowns are not fully analogous to the potential shutdown this week."

Investors are also monitoring commentary from several Fed policymakers for any signs of concern over the potential loss of economic visibility should a shutdown materialize.

Cleveland Fed President Beth Hammack, among the most hawkish Fed officials and not a voter on policy this year, said on Monday the central bank needed to maintain restrictive monetary policy to cool inflation. Traders, however, are pricing in a 91.4% chance of a 25-basis-point rate cut at the next Fed meeting.

As of 2:19 p.m., the Dow Jones Industrial Average rose 7.90 points, or 0.02%, to 46,255.19, the S&P 500 gained 14.98 points, or 0.23%, at 6,658.68 and the Nasdaq Composite added 120.10 points, or 0.53%, at 22,604.17. 

With oil prices falling sharply, the energy sector was the biggest laggard among the S&P 500's 11 major industry sectors.

Technology was the biggest gainer with big pushes from AI chip leader Nvidia ( NVDA ) along with Microsoft ( MSFT ).

Electronic Arts ( EA ) climbed 4.6% after the game publisher agreed to be taken private in a $55 billion deal, fueling hopes for broader deal prospects, said Bell of 248 Ventures, who saw the transaction as "confirmation that the M&A market is open."

Lam Research ( LRCX ) advanced 2.6%, after Deutsche Bank upgraded the rating on the chip-making equipment firm to "buy" from "hold."

AppLovin ( APP ) set a new record and was last up 5.4%, also providing one of the biggest lifts for the S&P 500. Morgan Stanley raised the target price on the stock to $750 from $480.

After U.S. President Donald Trump shared a video on Sunday promoting the health benefits of hemp-derived cannabidiol, U.S.-listed shares of cannabis-related companies rose. Canopy Growth ( CGC ) was up 17% and Cronos Group ( CRON ) climbed 15%, while Tilray Brands ( TLRY ) surged more than 48%.

Advancers outnumbered decliners by a 1.22-to-1 ratio on the NYSE where there were 295 new highs and 72 new lows. On the Nasdaq, 2,485 stocks rose and 2,101 fell as advancing issues outnumbered decliners by a 1.18-to-1 ratio.

The S&P 500 posted 34 new 52-week highs and six new lows while the Nasdaq Composite recorded 102 new highs and 66 new lows.