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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

(Updates with closer at 0400 GMT/2000 hrs GMT)

By Ankika Biswas, Lisa Pauline Mattackal and Saeed Azhar

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

megacap stocks rallied on data signaling U.S. labor market

weakness and pulled Treasury yields lower.

Microsoft ( MSFT ), Meta Platforms ( META ), Amazon.com ( AMZN )

and Apple ( AAPL ) advanced, pushing the information

technology sector to an all-time high.

S&P 500 communication services was the top

performing sector, reaching its highest level since 2000.

According to preliminary data, the S&P 500

gained 29.67 points, or 0.54%, to end at 5,566.69 points,

while the Nasdaq Composite gained 163.04 points, or

0.90%, to 18,351.34. The Dow Jones Industrial Average

rose 64.78 points, or 0.16%, to 39,372.78.

Labor Department data showed U.S. job 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

interest 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.

"The employment data is not indicative of an imminent

recession but supports the soft-landing view," said Jack

McIntyre, portfolio manager at Brandywine Global. "This clearly

increases the Fed's confidence level that policy rates are too

restrictive, and they need to cut."

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 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, pushing the S&P 500 banks index

lower.

Macy's on Friday surged after a report said

Arkhouse Management and Brigade Capital raised their bid to buy

the department store chain for about $6.9 billion.