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* 10-yr yield touches 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 0.73 pct, S&P up 0.10 pct, Nasdaq off 0.39 pct (Updates to early afternoon, adds comment)
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 the tech-heavy Nasdaq was weighed by a drop in Microsoft.
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 1.64 percent, lifted by a 2.6 percent increase in shares of JPMorgan & Chase. The KBW bank index was up 1.90 percent.
Also helping lift yields was data that showed U.S. homebuilding increased more than expected in August.
When yields are high, investors tend to favor bonds over defensive sectors such as utilities, consumer staples and real estate, which promise high dividends.
"The yield curve seems to be holding steady with the 10-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.
The Dow Industrials was about 0.6 percent away from a fresh record high after touching its highest since Jan. 29.
The technology sector dropped 0.50 percent, led by a 1.9 percent decline in Microsoft and a 0.2 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 a 2.5 percent gain in Caterpillar and 1.7 percent rise in Boeing.
But the utilities fell 1.71 percent, the most among the 11 major S&P sectors.
At 12:49 a.m. ET the Dow Jones Industrial Average was up 191.94 points, or 0.73 percent, at 26,438.90, the S&P 500 was up 2.79 points, or 0.10 percent, at 2,907.10 and the Nasdaq Composite was down 31.21 points, or 0.39 percent, at 7,924.90.
U.S.-China trade spat continues to weigh on the minds of analysts and investors but the broad conclusion from this week's exchange of blows was that China may be running out of options, given how much less it imports from the United States.
"We are not currently at a trade escalation, we are at status quo," said Art Hogan, chief market strategist at B. Riley FBR in New York.
Goldman Sachs was up 2.5 percent, after Reuters reported that the company was in advanced talks with several financial companies to spin off its app, which sells complex financial products to retail investors.
Copart Inc tumbled 16.5 percent, the most on the S&P, after the online vehicle auction company fell short of profit estimates, hurt by higher costs from the impact of Hurricane Harvey.
Declining issues outnumbered advancers for a 1.11-to-1 ratio on the NYSE and by a 1.09-to-1 ratio on the Nasdaq.
The S&P index recorded 31 new 52-week highs and no new lows, while the Nasdaq recorded 44 new highs and 38 new lows. (Reporting by Shreyashi Sanyal in Bengaluru; editing by Sriraj Kalluvila and Arun Koyyur)