US STOCKS-U.S. stocks rise as Apple hits $1 trillion mark

* Apple hits $1 trillion in market value

* Tech stocks pull S&P 500, Nasdaq higher

* Trade tensions escalate between United States and China

* Tesla surges after earnings call

* Indexes: Dow flat, S&P up 0.5 pct, Nasdaq up 1.1 pct (Updates to late afternoon, changes dateline to NEW YORK, changes byline)

By Stephen Culp

NEW YORK, Aug 2 (Reuters) - The S&P 500 and Nasdaq rose in afternoon trading on Thursday, driven by Apple shares as the iPhone maker became the first publicly traded U.S. company worth a trillion dollars.

Apple Inc extended its post-earnings rally, advancing 3.2 percent and crossing the trillion-dollar market value threshold.

“They get the blue ribbon,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama. “If you look at a trillion dollars, that’s about 5 percent of the U.S. economy. On the other hand, if you look at the stock relative to the market its (price-to-earnings ratio) is less, it still has a decent growth rate.”

The smartphone maker led the S&P technology index higher, advancing 1.3 percent. Facebook Inc climbed 2.4 percent and Alphabet Inc gained 0.7 percent. Inc, part of the consumer discretionary index, was up 1.9 percent.

The tech sector’s gain helped offset escalating trade tensions, as China urged the United States to “calm down” after U.S. Trade Representative Robert Lighthizer said he had been directed to increase previously proposed tariffs on Chinese imports. At a news briefing, China’s foreign ministry spokesman called the United States’ tactics “blackmail.”

“Investors seem to be pretty numb to it,” Hellwig said. “A lack of response in the markets may seem like headline fatigue but it’s really (economic) tailwinds that are underlying the strength in stock prices.”

Trade-sensitive industrial companies, including Boeing Co , were the biggest drags on the Dow.

The Dow Jones Industrial Average fell 2.68 points, or 0.01 percent, to 25,331.14, the S&P 500 gained 12.89 points, or 0.46 percent, to 2,826.25 and the Nasdaq Composite added 87.65 points, or 1.14 percent, to 7,794.93.

Yields on 10-year Treasuries edged lower as investors sought perceived safe-haven assets.

Shares of Tesla Inc jumped 14 percent after quarterly results convinced investors of future profitability and Chief Executive Elon Musk apologized for his behavior on the previous earnings call.

The Trump administration proposed weakening Obama-era fuel efficiency standards, setting up a legal battle between the federal government and states with tough emissions standards.

The S&P 500 automobiles index edged down 0.4 percent.

Of the 11 major sectors of the S&P 500, six were in positive territory.

For the second-quarter reporting season, 79.7 percent of the 380 companies that reported so far have posted earnings above analyst estimates, according to Thomson Reuters data.

Chemical producer DowDuPont Inc posted profit that beat consensus estimates for the fourth straight quarter, driven by price increases and strong demand. But it said higher raw material costs would hit all its units in the second half of the year, driving its stock down 2.2 percent.

On the deal front, Cisco Systems Inc said it would buy venture capital-backed cyber security firm Duo Security for $2.35 billion in cash. Cisco stock rose 1.4 percent following the announcement.

In economic news, the number of Americans filing for unemployment benefits rose less than expected last week and U.S. durable goods data showed an increase in new orders but a continuing slowdown in business expenditures on new equipment.

Advancing issues outnumbered declining ones on the NYSE by a 1.36-to-1 ratio; on Nasdaq, a 1.55-to-1 ratio favored advancers.

The S&P 500 posted 12 new 52-week highs and 5 new lows; the Nasdaq Composite recorded 77 new highs and 89 new lows.