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* Markets look past mixed reports on U.S.-China trade talks
* Consumer discretionary sector top boost to S&P 500
* Only defensive utilities, real estate in the red
* Federal Reserve kicks off two-day policy meeting
* Markets look past mixed trade talk reports
* Indexes up: Dow 0.32 pct, S&P 0.38 pct, Nasdaq 0.47 pct (Updates to early afternoon)
By Medha Singh and Shreyashi Sanyal
March 19 (Reuters) - The S&P 500 and Nasdaq held at five-month highs on Tuesday as investors hoped the Federal Reserve would stick to its patient stance at the end of a two-day policy meeting this week, shrugging off mixed reports on the U.S.-China trade talks.
Wall Street's main indexes hit session lows after Bloomberg reported some U.S. officials were concerned that China was pushing back against American demands in trade talks.
Meanwhile, the Wall Street Journal reported that the U.S.-China trade talks were in the final stages and U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin would be flying to Beijing next week.
The U.S. Federal Reserve is expected to keep interest rates steady and reiterate a halt to further interest rates hikes, on the heels of a flurry of downbeat economic data this month. The policy meeting concludes with a news conference on Wednesday.
Of particular interest to investors is the individual interest rate forecasts of policymakers, as well as any details on plans to reduce the central bank's holdings in bonds.
"Markets are rallying on a sense of anticipation that we are going to see continued low interest rates and a slightly positive outlook on rates going forward," said Jeff Sica, chief executive officer and chief investment officer at Circle Squared Alternative Investments.
Optimism that the Fed will remain less aggressive in raising rates and hopes of a resolution to the U.S.-China trade dispute helped the S&P 500 and Nasdaq claw back most of its losses from late last year.
The benchmark index is now about 3 percent shy of its record closing high in September.
"U.S. stocks are nearing record highs once again as investors price in a cautious scenario for policy, considering the macroeconomic environment hasn't changed much since the Fed paused in January," wrote John Lynch, chief investment strategist for LPL Financial in a note.
A more than 1 percent gain in health care and consumer discretionary sector provided the biggest boost to the benchmark S&P 500.
Among the 11 major S&P sectors, defensive utilities , real estate and the rate-sensitive financial stocks lagged.
At 1:33 p.m. ET the Dow Jones Industrial Average was up 83.21 points, or 0.32 percent, at 25,997.31. The S&P 500 was up 10.64 points, or 0.38 percent, at 2,843.58 and the Nasdaq Composite was up 36.03 points, or 0.47 percent, at 7,750.51.
Nvidia Corp rose 4.2 percent after a partnership with Softbank Group Corp and LG Uplus Corp, while Advanced Micro Devices Inc surged 7.2 percent pushing the Philadelphia SE chipmakers index higher.
Fox Corp dropped 3.8 percent after its debut, marking a new phase for billionaire Rupert Murdoch's media business after the sale of Twenty-First Century Fox Inc's film and television assets to Walt Disney Co.
Monster Beverage Corp slipped 4.2 percent after Wells Fargo raised concerns about competitive pressures from rival energy drink Bang.
Advancing issues outnumbered decliners for a 1.29-to-1 ratio on the NYSE and a 1.11-to-1 ratio on the Nasdaq.
The S&P index recorded 41 new 52-week highs and no new low, while the Nasdaq recorded 60 new highs and 25 new lows. (Reporting by Medha Singh and Shreyashi Sanyal in Bengaluru; Editing by Shounak Dasgupta)