(For a live blog on the U.S. stock market, click or type LIVE/ in a news window.)
* S&P 500 at all-time high, Nasdaq inches closer to record
* Microsoft rises on Pentagon contract win
* Tiffany surges on LVMH's $120/share offer
* Spotify gains after surprise quarterly profit
* Indexes up: Dow 0.28%, S&P 0.50%, Nasdaq 0.96% (Updates to early afternoon)
By Arjun Panchadar
Oct 28 (Reuters) - Technology stocks propelled the benchmark S&P 500 index to an all-time high, while the Nasdaq hovered below its record level, as a possible U.S.-China trade deal and rising bets on a third rate cut by the Federal Reserve fueled optimism.
Shares of Microsoft Corp gained 2% and were among the biggest boost to all three major indexes after the technology giant won the Pentagon's $10 billion cloud computing contract, beating Amazon.com Inc.
The S&P 500 rose as much as 0.7% to 3,044.08, breaching the record level hit in July, while the Nasdaq was less than 0.5% below its all-time high. The Dow Jones Industrial Average was more than 1% away from its record high.
President Donald Trump said on Monday he expected to sign a significant part of the trade deal with China ahead of schedule but did not elaborate on the timing.
That added to Friday's optimism when Washington said it was "close to finalizing" some parts of a trade agreement with China.
"Most of the things that have been worrying markets haven't necessarily been resolved but the concern about them has waned a little bit," said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin.
"In general, it is more of a lack of bad news than it is an abundance of good news."
The news comes as a relief to investors who have been reeling from the impact of the trade war and its fallout on the domestic economy.
Adding to the upbeat mood, the Fed is expected to widely cut interest rates at its two-day policy meeting, which ends on Wednesday.
The odds for a quarter percentage point cut in U.S. borrowing costs have jumped to 95% from 49% last month, according to CME Group's FedWatch tool.
The third-quarter earnings season has managed to ease some concerns related to the impact of the trade tensions on Corporate America, with over 78% of the 204 S&P 500 companies that have reported so far surpassing profit expectations, according to Refinitiv data.
Investors are now waiting for earnings from heavyweights this week, including Apple Inc, Alphabet Inc and Merck & Co Inc.
Chipmakers, which have a sizable exposure to China, gained helping the Philadelphia SE Semiconductor index rise 1.6%. The technology, healthcare and communication services sectors gained more than 1% each.
"We're likely to hold at a high today and may just float around sideways for a while," Frederick added.
At 1:00 p.m. ET, the Dow Jones Industrial Average was up 74.92 points, or 0.28%, at 27,032.98, the S&P 500 was up 15.24 points, or 0.50%, at 3,037.79 and the Nasdaq Composite was up 78.83 points, or 0.96%, at 8,321.95.
Among other stocks, AT&T Inc rose about 4% after the U.S. wireless carrier said it would add two new board members and consider selling off up to $10 billion worth of non-core businesses next year.
Tiffany & Co surged about 31% after Louis Vuitton owner LVMH made a $120 per share offer to buy the U.S. luxury jeweler.
Spotify Technology SA gained about 14.47% after the music streaming company posted a surprise quarterly profit and beat revenue estimates.
Advancing issues outnumbered decliners by a 1.48-to-1 ratio on the NYSE and by a 2.23-to-1 ratio on the Nasdaq.
The S&P index recorded 39 new 52-week highs and no new lows, while the Nasdaq recorded 104 new highs and 30 new lows. (Reporting by Arjun Panchadar and Medha Singh in Bengaluru; Editing by Anil D'Silva and Maju Samuel)