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* Financials biggest percentage gainer in S&P 500
* U.S. 10-year Treasury yield touches four-month high
* Amazon lower on news of EU regulatory inquiry
* Microsoft dips after MS says dividend hike disappoints
* Indexes: Dow up 0.74 pct, S&P 500 up 0.14 pct, Nasdaq off 0.16 pct (Updates to late afternoon; changes dateline, byline)
By Stephen Culp
NEW YORK, Sept 19 (Reuters) - The S&P 500 and the Dow Jones industrial average rose on Wednesday, with the Dow hitting its highest level since late January as rising Treasury yields boosted the financial sector and trade jitters abated.
Technology stocks offset the gains, dragging on the markets and pulling the tech-heavy Nasdaq into negative territory.
Financial companies were up 1.9 percent, the biggest percentage gainer among the major S&P 500 sectors, as the benchmark 10-year Treasury yield hit a four-month high. Goldman Sachs, JPMorgan Chase, Citigroup and Bank of America were all up around 3 percent.
"Financials are going to respond to stronger data, very much keeping the Fed on the path of gradual policy normalization," said Matt Forester, chief investment officer at BNY Mellon's Lockwood Advisors in King of Prussia, PA. "We're going to get another Fed rate hike in the meeting coming up next week, and probably see an upgraded U.S. economic assessment."
U.S. government bond yields rose after the U.S. Commerce Department reported a bigger-than-expected increase in housing starts.
The Dow Jones Industrial Average rose 193.04 points, or 0.74 percent, to 26,440, the S&P 500 gained 4.02 points, or 0.14 percent, to 2,908.33 and the Nasdaq Composite dropped 13.02 points, or 0.16 percent, to 7,943.09.
Of the 11 major sectors of the S&P 500, six were in negative territory.
So-called defensive stocks, including utilities, real estate and telecom were trading lower as rising yields provided investors with an attractive alternative to higher-risk equities.
The technology sector dropped 0.3 percent, led by a 1.5 percent decline in Microsoft. The company raised its quarterly dividend on Tuesday by about 10 percent, but Morgan Stanley said the hike was below the company's 12-month trailing operating income growth.
Amazon.com slid 1.2 percent as European Union regulators looked into whether the online retailer was using merchant data to stifle competition.
Among the other components of the FAANG group of momentum stocks, all but Google parent Alphabet Inc were down. Other FAANG companies include Facebook Inc, Apple Inc and Netflix.
In the latest volley of the trade dispute between the United States and China as Premier Li Keqiang dismissed talk that Beijing is deliberately weakening its currency to boost exports.
But trade anxieties appeared to ease as investors anticipated little impact from China's actions. "The direct impact of the latest round of tariffs on the economy is likely to be minimal," wrote Bank of America Merrill Lynch in a research report.
"The overall sizes of these tariff issues are relatively small compared to the tax cuts and other stimulus measures that have been adopted," Forester added.
Declining issues outnumbered advancing ones on the NYSE by a 1.12-to-1 ratio; on Nasdaq, a 1.07-to-1 ratio favored decliners.
The S&P 500 posted 32 new 52-week highs and no new lows; the Nasdaq Composite recorded 46 new highs and 42 new lows. (Reporting by Stephen Culp Editing by Nick Zieminski)