(For a live blog on the U.S. stock market, click or type LIVE/ in an Eikon news window.)
* 10-yr yield reaches four-month high of 3.07 pct
* Two-yr yield hits highest in over a decade
* Financials top boost to S&P, techs biggest drag
* Microsoft dips after MS says dividend hike disappoints
* Indexes: Dow up 0.64 pct, S&P up 0.06 pct, Nasdaq off 0.42 pct (Adds comments, updates prices)
By Shreyashi Sanyal
Sept 19 (Reuters) - The S&P 500 and the Dow Jones Industrials Average rose on Wednesday, helped by upbeat housing data and a gain for bank stocks driven by rising Treasury yields, while a drop in Microsoft pressured the tech-heavy Nasdaq.
The benchmark 10-year U.S. Treasury yield moved back above the symbolic 3 percent mark on Tuesday and hit its highest in four months on Wednesday, while two-year rates reached 2.8 percent, the highest in over a decade.
Rises in market interest rates tend to boost banks and the S&P financial sector rose 1.52 percent, lifted by a 2.4 percent increase in shares of JPMorgan & Chase. The KBW bank index was up 1.83 percent.
When yields are high, investors also tend to favor bonds over defensive sectors such as utilities, consumer staples and real estate, which promise high dividends and slow growth.
"The yield curve seems to be holding steady with the ten-year above 3 percent which bodes well for the financial group and investors are seeing broader economic stability," said Terry Sandven, chief equities strategist at U.S. Bank Wealth Management in Minneapolis.
Data showed U.S. homebuilding increased more than expected in August, a positive sign for a housing market which has underperformed the broader economy amid rising borrowing costs.
The technology sector dropped 0.69 percent, led by a 1.4 percent decline in Microsoft, followed by a 1.0 percent decline in shares of Apple.
Microsoft on Tuesday raised its quarterly dividend by about 10 percent, but Morgan Stanley said the hike was below the company's 12-month trailing operating income growth.
Five of the 11 major S&P sectors were higher. The Dow Industrials was boosted by trade-sensitive Caterpillar , up 2.6 percent. But utilities fell 1.09 percent, the most among the 11 major S&P sectors.
At 11:00 a.m. ET the Dow Jones Industrial Average was up 167.43 points, or 0.64 percent, at 26,414.39, the S&P 500 was up 1.66 points, or 0.06 percent, at 2,905.97 and the Nasdaq Composite was down 33.24 points, or 0.42 percent, at 7,922.87.
Investors have largely shrugged off this week's latest moves by the United States and China to tax imports from either country, and all three major U.S. indexes closed higher on Tuesday.
The trade issue continues to weigh on the minds of analysts and investors but the broad conclusion from this week's exchange of blows was that China in particular may be running out of ammunition, given how much less it imports from United States than vice versa.
Among news-driven stock moves, Praxair rose 5.1 percent after Reuters reported that German industrial gases group Linde was to sell additional assets to gain U.S. approval for the pair's planned merger.
Juniper Networks climbed 1.3 percent after Nomura upgraded shares of the network gear maker. The brokerage said it expected a return to growth for the company's cloud business.
Advancing issues outnumbered decliners by a 1.26-to-1 ratio on the NYSE and decliners by a 1.26-to-1 ratio on the Nasdaq.
The S&P index recorded 30 new 52-week highs and one new lows, while the Nasdaq recorded 39 new highs and 33 new lows. (Reporting by Shreyashi Sanyal in Bengaluru; editing by Patrick Graham and Sriraj Kalluvila)