*

Indexes up: Dow 0.92%, S&P 500 0.45%, Nasdaq 0.23%

*

Applied Materials ( AMAT ) flags $600 mln revenue hit in 2026

*

USA Rare Earth ( USAR ) rises after report of talks with White

House

*

Services employment index contracts

(Updates with late-morning trading)

By Niket Nishant and Sukriti Gupta

Oct 3 (Reuters) -

Wall Street's main indexes hit record intraday highs on

Friday, driven by AI optimism and signs of a cooling labor

market that strengthened the case for interest-rate cuts and put

them on track for weekly gains.

The stock moves underscored a relentless equities rally

despite the federal government shutdown stretching to a third

day and clouding visibility into economic data.

Enthusiasm around AI has helped underpin sentiment this

week and markets have also historically shrugged off shutdowns.

However, some analysts warned a prolonged impasse could

weigh on the economy.

"The longer the shutdown drags out, the greater the

potential for lost output and consumption thanks to the

disruption in activity," said Garrett Melson, portfolio

strategist at Natixis Investment Managers.

A

survey

by the Institute for Supply Management showed the services

employment index contracted for the fourth consecutive month. A

weak stand-in for the Labor Department's nonfarm payrolls

report, the survey is nonetheless gaining prominence amid a data

blackout caused by the shutdown.

"We may be flying blind for the foreseeable future as

far as official government data goes, but the mosaic continues

to confirm the growing downside risks to the labor market,"

Melson said.

Bank of America Global Research also

pulled forward

its forecast for the next rate cut to October from

December.

At 11:51 a.m. the Dow Jones Industrial Average rose

429.83 points, or 0.92%, to 46,949.30, the S&P 500 gained

30.27 points, or 0.45%, to 6,745.67, and the Nasdaq Composite

was up 52.20 points, or 0.23%, to 22,896.25.

The small-cap Russell 2000 index also hit an intraday

record high and was last up 1.4%.

The S&P 500 tech sector rose 0.4%, while

healthcare added 1.4% and was on track for its best

week since June 2022.

Communication services shares on the S&P 500

fell 0.55%, dragged by losses in Meta Platforms ( META ) and

Alphabet, which were down 1.55% and 0.5%,

respectively.

A gain in banks such as Goldman Sachs ( GS ) and

JPMorgan ( JPM ), which rose 1.5% and 0.7%, respectively,

boosted the Dow.

Chicago Fed President Austan Goolsbee said he was

hesitant to commit to a series of rate cuts with inflation still

running above the target.

Investors will also scrutinize comments from Dallas Fed

President Lorie Logan and Fed Vice Chair Philip Jefferson later

in the day.

In corporate news, Applied Materials ( AMAT ) fell 2.7%

after the chip-equipment maker forecast a $600 million hit to

fiscal 2026 revenue on broader semiconductor export curbs.

Shares of USA Rare Earth ( USAR ) hit a record high and were

last up 18.4% after CEO Barbara Humpton told CNBC the company

was "in close communication" with the White House.

BlackRock ( BLK )-owned Global Infrastructure Partners is in

talks to acquire Macquarie-backed Aligned Data Centers

in a deal that could value the company at $40 billion, Reuters

reported, highlighting the clamor around AI infrastructure.

Advancing issues outnumbered decliners by a 2.52-to-1 ratio

on the NYSE and by a 2.24-to-1 ratio on the Nasdaq.

The S&P 500 posted 37 new 52-week highs and one new low,

while the Nasdaq Composite recorded 141 new highs and 19 new

lows.